Colleges and universities in the United States are increasingly relying on bond sales to secure financial stability as they navigate uncertainties in federal funding and political pressures. The trend has accelerated in 2025, with institutions raising more capital through bond issuance this year than at any point in the past decade. Harvard University, which holds the largest university endowment globally, recently issued $434 million in tax-exempt bonds to mitigate potential financial risks stemming from government policy changes. The movement reflects growing concerns among higher education leaders about sustaining operations amid evolving federal budget priorities.
Educational institutions have previously turned to debt markets during periods of financial strain, but the scale of borrowing in 2025 surpasses previous years. While Harvard and other Ivy League schools possess sizable endowments, recent investment performances have not kept pace with broader market growth. Between 2018 and 2022, elite universities collectively received over $33 billion in federal research funding, yet shifts in government policy have introduced new risks. Harvard’s endowment slightly declined to $50.7 billion in fiscal 2023, reflecting increasing withdrawals exceeding investment returns.
Why are universities increasing their debt financing?
A significant driver behind this surge in borrowing is the federal government’s shifting stance on higher education. The Trump administration recently rescinded $400 million in funding to Columbia University, citing concerns over campus policies and alleged failures to address antisemitic incidents. This decision is part of a broader review of diversity, equity, and inclusion (DEI) programs, with more than 50 institutions under federal investigation. Facing potential funding reductions, universities are seeking alternative sources of capital to maintain financial stability.
How do investment strategies impact endowment performance?
Ivy League institutions have historically allocated a significant portion of their endowments to private market investments, including private equity and venture capital. These assets, however, have underperformed in a high-interest-rate environment, contributing to weaker returns compared to traditional market benchmarks. In fiscal 2024, Ivy League endowments delivered an average return of 8.3 percent, falling behind the S&P 500 by more than 15 percentage points. This underperformance has placed additional pressure on universities to explore alternative financial strategies, including increasing reliance on debt issuance.
Harvard, maintaining its AAA credit rating, has capitalized on favorable borrowing conditions to offset financial shortfalls. The university previously raised $750 million in bonds in March 2024, responding to declining alumni donations. Other institutions have also adjusted their financial models, with some implementing hiring freezes and revising tuition policies. Harvard, for example, recently expanded financial aid by waiving tuition for families earning less than $200,000 annually. These measures reflect a strategic balancing act between maintaining institutional accessibility and ensuring long-term financial stability.
Beyond Harvard, numerous universities have adopted similar strategies to safeguard their financial health. The University of Pennsylvania and MIT have also adjusted tuition policies while reassessing operational expenses in light of potential reductions in federal grants. These actions indicate a broader shift within higher education, as institutions attempt to navigate evolving fiscal and political realities. While borrowing provides immediate financial relief, it also raises questions about long-term debt sustainability and the impact on future budgets.
Higher education institutions are facing growing financial challenges as federal funding becomes less predictable. The increase in bond issuance highlights the urgency with which universities are responding to potential funding gaps. Despite their large endowments, Ivy League schools have struggled to achieve strong investment returns in recent years, making external financing a necessary option. As financial pressures mount, universities will need to carefully balance reliance on debt with maintaining strong credit ratings and ensuring their long-term fiscal health. The extent to which these borrowing strategies will affect future tuition costs, academic programs, and institutional priorities remains an open question.
