Questions about Harvard’s ability to pay the bills amid a battle royale with the Trump administration have prompted the Department of Education to downgrade the university’s standing for purposes of federal student aid.
The department announced Friday that Harvard has been moved to Heightened Cash Monitoring status, which requires the university to draw on its own funds in disbursing student loans before seeking reimbursement from the Office of Federal Student Aid.
In addition, the office will require the university to post “an irrevocable letter of credit for $36 million or provide other financial protection” to address concerns about Harvard’s “financial responsibility,” said the department in a statement.
“Students will continue to have access to federal funding, but Harvard will be required to cover the initial disbursements as a guardrail to ensure Harvard is spending taxpayer funds responsibly,” the department said.
Education Secretary Linda McMahon said the actions “follow Harvard’s own admission that there are material concerns about its financial health.”
“As a result, Harvard must now seek reimbursement after distributing federal student aid and post financial protection so that the Department can ensure taxpayer funds are not at risk,” Ms. McMahon said. “While Harvard remains eligible to participate in the federal student aid program for now, these actions are necessary to protect taxpayers.”
Of course, the Trump administration may have had something to do with Harvard’s increasingly precarious financial situation.
The university issued $1.2 billion in bonds earlier this year as the administration moved to cut off access to an estimated $2.6 billion in research grants and contracts, saying Harvard failed to comply with Title VI of the Civil Rights Act of 1964 with its handling of campus antisemitism.
A federal judge temporarily blocked the funding from taking effect earlier this month, pending the outcome of a lawsuit filed by Harvard, although the administration has vowed to appeal.
Harvard spokesperson Jason Newton said Friday that the university received its first significant federal research funding in four months with the arrival of $46 million from the National Institutes of Health.
The funding infusion comes from about 200 of Harvard’s 1,500 active NIH grants, which totaled $488 million in fiscal year 2024, or about 70% of the university’s total federal funding, according to the Harvard Crimson.
The decision to place the university on reimbursement status was spurred by three “triggering events”: The $1.2 billion in bond sales, the Title VI violation, and the school’s “noncompliance with requests from the Department’s Office for Civil Rights,” which could render Harvard ineligible for federal student aid.
In addition, Harvard and other wealthy universities saw the excise tax rate on their endowments soar from 1.4% to 8% under the One Big Beautiful Bill, further restricting the Ivy League institution’s finances.
In its April bond-sale statement, Harvard acknowledged that recent federal developments could have “a material adverse effect on the current and future financial profile and operating performance of the University.”
The department concluded that “the issuance of these bonds is likely to have a significant adverse impact on the financial condition of Harvard.”
“The face value of the bonds amounts to roughly 15 percent of Harvard’s annual revenue,” said the department. “Taking on the additional debt may make it materially more difficult for Harvard to satisfy any liabilities with the Department in the event that it loses access to federal funding.”
In addition, Harvard also “carried out multiple layoffs beginning in the summer, coming on top of university-wide hiring and salary freezes instituted in the spring,” the department said.
Harvard boasts an endowment of $53 billion, the largest of any university in the world, but those funds are largely invested in illiquid securities, meaning that “taxable debt sold today would cost less than forgoing typical returns on endowment holdings,” said Harvard Magazine.
“That is even more the case if illiquid holdings could be sold only at a loss. So, the first solution is tapping the debt markets,” said the magazine in its April 14 analysis.
