Harvard University recorded an operating deficit of USD 113 million in fiscal year 2025, marking its first shortfall since 2020, even as its endowment grew strongly by 11.9 per cent, reaching USD 56.9 billion.

This deficit represents around 1.7 per cent of its total USD 6.7 billion revenue. Harvard officials attribute the gap largely to the suspension of federal research grants under the Trump administration, which slashed their sponsored research income, Times of India reports. 

The freeze affected practically all federal research funding in mid-year. Even as many grants were ultimately restored by a court ruling, the reinstatements occurred after the fiscal year had concluded, thus failing to offset the shortfall.

Non-federal sponsored revenue increased by 6 per cent to USD 345 million, but it was insufficient to counterbalance the federal revenue decline. To control cash flow, Harvard used USD 250 million of its contingency reserves to temporarily fund research operations. 

Concurrently, the institution implemented cost-cutting and austerity measures such as hiring freezes, paused wage hikes, and even layoffs in some departments. 

Despite these obstacles, Harvard's investment returns remain strong. The endowment provided USD 2.5 billion to the operating budget, accounting for approximately 37 per cent of total revenue. 

However, the deficit is a warning sign. Recently passed legislation raises the tax rate on endowment returns from 1.4 per cent to 8 per cent, potentially costing Harvard USD 300 million annually. Moreover, about 80 per cent of the endowment funds of Harvard are restricted, limiting their flexibility.

The deficit, therefore, signals deeper structural challenges linked to federal funding instability and rising costs, rather than a simple financial setback.