Beyond the standard holiday cheer, Harvard’s fall semester ended with a mild sense of foreboding. The University had spent the fall coming to terms with the consequences of extraordinary financial pressure—from the federal government’s assault on higher education and from the strains of its historic, aging campus and complex bureaucracy.xa
The upshot was a string of troubling economic reports, a continued trickle of layoffs across professional schools and the central administration, and an understated battle of competing narratives. On the one hand, critics of Harvard’s spending cuts raised fears that dramatic budgeting moves will put the University’s teaching and research mission at risk. On the other hand, administrators cautioned that government actions still loom and that Harvard’s long-term financial stability—the critical underpinning of its mission—is going to require difficult choices, no matter what.
University leaders have begun making some of those choices amid a drumbeat of sobering financial news. Harvard’s financial report for the fiscal year that ended on June 30, 2025, released in late October, showed that while revenue and expense growth both decelerated that year, expenses nevertheless rose nearly twice as fast as revenues. The result was a $113 million deficit—the University’s first operating deficit in more than a decade.
University financial leaders have, in fact, been cautioning for years that Harvard was on an unsustainable path, with expenses outpacing revenues.
The report suggested serious financial and academic challenges on the horizon, as the federal government shatters its research partnership with higher education, imposes a tax on the net investment income of university endowments that could cost Harvard as much as $300 million per year, and tries to limit the enrollment of foreign students. (The fiscal year 2025 report also reflected only a few months’ worth of the legal expenses Harvard has incurred while defending its rights in court.)
But the government’s assault told only part of the story. University financial leaders have, in fact, been cautioning for years that Harvard was on an unsustainable path, with expenses outpacing revenues.
Those same themes echoed weeks later when the Faculty of Arts and Sciences (FAS), Harvard’s largest division, released its own financial report. At the November FAS meeting, economics professors from a working group described projections of a $350 million structural deficit in the division’s $1.8 billion annual budget. The FAS will be particularly hard-hit, they warned, by federal government actions. But they also outlined challenges that have nothing to do with politics, such as a looming crisis in deferred maintenance costs involving more than 250 aging buildings.
“What we’re facing is not a short-term budget gap that can be solved with temporary cuts,” Hopi Hoekstra, the Edgerley family dean of the FAS, told the assembled faculty in University Hall that day. “Instead, we face a structural problem that demands structural solutions.”
While the working group painted a maximally dire picture of FAS finances—deferred maintenance alone, they said, could drain $400 million per year from the FAS budget during the next 15 years—accounting practices and administrative choices could make an annual gap less dramatic. Indeed, much of the conversation around the University during the fall had to do with evaluating just how acute Harvard’s crisis has become and questioning, and sometimes revisiting, the decisions University leaders have been taking in response.
The cuts have indeed been painful: the summer and fall saw layoffs across the University, from administrative staff at some graduate and professional schools to information technology personnel in the central administration to about 40 people, including student advisers and lecturers, at the Harvard Paulson School of Engineering and Applied Sciences. Some faculty and staff have questioned whether the University is acting rashly. An open letter from the Harvard Union of Clerical and Technical Workers (HUCTW), posted on the union’s website in late October, pointed to some positive details within the University’s financial report—such as an 11.9 percent rate of return on endowment investments and a nearly 20 percent increase in gifts for current use—as reasons to exercise caution before engaging in massive staff reductions.
“Drawing up plans for worst-case scenarios is prudent,” HUCTW’s website read. “But dismantling critical programs and community members’ livelihoods based on hypothetical danger is not prudence—it is panic.” (The week after Thanksgiving, some HUCTW members held an energetic “no layoffs” rally in front of the Smith Campus Center.)
Within the FAS, much anxiety centered on a decision to severely reduce admissions to the Harvard Griffin Graduate School of Arts and Sciences—cutting new Ph.D. enrollments by as much as 75 percent for graduate students in the sciences. (The FAS currently enrolls about 1,000 Ph.D. students and typically gives them a five-year commitment with a financial support package that covers tuition, fees, and basic living expenses.) Hoekstra told faculty that the cuts were a temporary step as the FAS reassesses its financial footing and takes stock of the government’s intentions regarding federal grants.
Some faculty, though, protested that doctoral students play a critical role in teaching undergraduates, performing research in laboratories, and cementing Harvard’s leadership in higher education. At the November FAS meeting, one chemistry professor said she feared that Harvard was “destroying something here that we can’t actually bring back.” Weeks later, in an email to FAS colleagues, Hoekstra announced an adjustment: the cuts would be limited to 50 percent, with the gap backstopped by FAS bridge funding.
Fifty percent is still a dramatic reduction, of course, and it reflects the uncertainty that University officials continue to feel amid an ongoing battle with the federal government. While a federal judge has reinstated research grants that the government cut summarily last summer, the Trump administration has vowed to appeal that decision. In the longer term, many expect the federal government to dramatically reduce its support, nationwide, for health and science research. Uncertain, too, is the future reimbursement rate for “indirect costs,” the negotiated fees the government pays, on top of any research grant, to account for overhead expenses. The prospect of a costly settlement still looms (in late November, U.S. Secretary of Education Linda McMahon told a reporter at the White House, once again, that a deal was close), and so does the prospect of a lengthy and expensive set of court battles.
Then there is the matter of broader, structural challenges—inherent to an institution that, when money flowed more predictably, tended to grow in diffuse and uncoordinated ways. A 2021 report from another FAS working group—convened by former President Claudine Gay, then serving as the FAS dean—had described an unsustainable financial state and suggested the need for administrative changes. Now, it seems, some of those decisions could be back on the table.
At the December FAS meeting, Hoekstra spoke optimistically about “twofers:” actions that both save money and provide helpful bureaucratic reforms. For example, she said, by moving some departments from costly leased space to FAS-controlled buildings, faculty can find new opportunities for collaboration. But not every coming change might be such a happy win-win. The carefully worded language in the 2021 report suggests actions that would likely feel massive to the faculty involved—including revising the way the FAS handles its more than 2,700 endowment funds that are restricted for specific purposes; initiating conversations about retirement and equitable distribution of workload; and restructuring academic departments to reflect student interests.
Finding a balance between short-term pain and long-term stability will be an ongoing struggle, at least for the next several years.
Finding a balance between short-term pain and long-term stability will be an ongoing struggle, at least for the remaining three years of the Trump administration. But it’s also true that crises beget opportunities. Just as Andrea Baccarelli, dean of the Harvard Chan School of Public Health, declared the need to examine longstanding practices and reconsider outside partnerships last summer, leaders of other Harvard schools are using financial challenges to revisit administrative shifts and spending choices they had identified in the past but never executed. The question is whether the University’s financial state will alter the balance of political capital—and change the state of Harvard’s own bureaucracy.
