As elite US colleges grapple with a debt crisis, Ivy League schools are shifting their financial strategies amid rising uncertainty and federal policy changes.
Colleges and universities in the US have raised more money through bond issuance in 2025 than in any year over the past decade, with institutions rethinking their financial strategies amid rising political pressure and uncertainties around federal funding.
The surge comes as the Trump administration’s crackdown on diversity, equity, and inclusion (DEI) programs has sent shockwaves through higher education circles. The White House criticized ‘antisemitic violence and harassment’ referencing pro-Palestinian demonstrations on campus. This move was part of a broader crackdown on DEI initiatives and campus policies, with the Trump administration currently investigating over 50 universities.
Federal funding remains a major pillar of elite universities’ budgets. The eight Ivy League schools, along with Stanford and MIT, received a combined $33.1 billion in federal research grants and contracts between 2018 and 2022. While these institutions are not entirely reliant on government support, such cuts can still punch meaningful holes in their financial plans.
Despite their reputations for savvy investing, ‘Ivy League endowments have lagged behind markets in recent years’ . For the fiscal year ended June 30, 2024, they returned an average of 8.3 percent, underperforming the S&P 500 by 15.2 percentage points. Harvard‘s endowment declined slightly to $50.7 billion at the end of fiscal 2023, from $50.9 billion the year prior, as the school withdrew more than it gained on investments.
The Rise of Debt Financing in Higher Education
A key reason for Ivy League endowments‘ underperformance is their heavy allocation to private markets—particularly private equity and venture capital assets—which have struggled in a high-interest-rate environment in recent years. Most Ivy League schools dedicate around 30 percent of their portfolios to these asset classes, a significantly larger slice than the average university.
Debt financing is a type of funding where an individual or business borrows money from a lender to finance a specific project, asset, or liability.
This can include loans, bonds, and other debt instruments.
In exchange for the borrowed funds, the borrower agrees to repay the principal amount plus interest over time.
Debt financing is commonly used in corporate finance, real estate, and personal borrowing.
According to a survey by the Federal Reserve, household debt in the United States reached $14.3 trillion in 2022, highlighting the widespread use of debt financing in everyday life.
With endowment returns under pressure and federal policy in flux, universities are increasingly turning to the bond market for stability. Thanks to long-standing fiscal discipline, schools like ‘Harvard still enjoy top credit ratings and access to relatively low borrowing costs’ . Last March, the university maintained its AAA rating and raised $750 million through bond sales to offset a 15 percent decline in alumni donations.
The Impact of Debt on Financial Aid
While these debt instruments have helped universities maintain operations with minimal disruption, challenges could surface as these elite schools expand financial aid. Harvard recently announced it will waive tuition for families earning under $200,000 per year, joining peers like the University of Pennsylvania and MIT. Yet, both Harvard and MIT have also implemented hiring freezes, citing federal scrutiny and financial uncertainty as driving factors.
A hiring freeze is a temporary restriction on filling job vacancies within an organization.
It can be implemented by employers, governments, or other entities to manage workforce growth, reduce costs, or address economic conditions.
During a hiring freeze, new positions are not created, and existing employees may be reassigned or their roles modified.
According to a survey, 34% of companies have implemented a hiring freeze in response to the COVID-19 pandemic.
This measure can impact employee morale, productivity, and retention.
