Liz Hoffman, Universities’ nightmare scenario: it’s not just federal funding cuts, Semafor, May 29, 2025.
Top universities are financial titans, generating investment profits that mirror those of Wall Street firms. They are health care companies; the University of Pennsylvania gets half its revenue from the hospitals it runs. They commercialize the inventions that spring from their labs. They sell four-year subscriptions for rent and classes to their students and lifelong memberships in an elite club to their donors (posthumous, if the checks are big enough).
By revenue, UPenn is bigger than BNY Mellon; Columbia is as big as Coinbase. But these universities operate on profit margins thinner than those of a grocery store. In short, they make a lot of money but spend almost all of it.
That leaves little wiggle room when any of their revenue streams is threatened, as they are all now by the Trump administration. Harvard has sued to block several of the president’s attacks. “They want to show how smart they are, and they’re getting their ass kicked,” Trump told reporters Wednesday.
This, that, and the other:
Summing up: The Trump administration’s across-the-front assault — if it survives legal challenges — could push universities into financial ruin. So far, universities have been borrowing to fill the gap, and my colleague Reed Albergotti recently highlighted some ways that Silicon Valley is stepping in to fund research, but neither source can fill the gap.
Step Back
The nightmare scenario outlined above would hit US banks, which have built a brisk business lending against the good name of university endowments.
In recent years, banks have lent money to Wall Street investment firms, backed by the promises from Harvard and other university endowments to pony up money for their next funds. The total size of these “capital call” loans isn’t clear, but they belong to a fast-growing bucket of loans that has worried global regulators, which are watching the post-2008 financial reordering for signs of a spillover event.
Loans against fund commitments by university endowments are a big chunk of those loans, and they have been assumed to be safe, on that theory that big institutions wouldn’t renege on promises to invest in, for example, Blackstone’s next fund: “Our counterparty here is, like, Harvard,” one Goldman executive told me in early 2024.
What do I think of this?
On the one hand, I think Trump's rampage against universities is destructive, potentially enormously so. Right now his rage is directed against the big private universities. They aren't the whole system, not by a long shot. Many, by no means all, of the best thinkers are there. Beyond this, various (some? many?) states have been making (drastic) changes to their systems of higher education, e.g. Florida.
OTOH, when I was a graduate student in English at SUNY Buffalo, arguably the best experimental English program in the nation at the time (1973-78), the faculty thought of Harvard English as high-class deadwood. While Harvard English has come up in the world since then, and SUNY English is no longer what it was then, that's still pretty much how I think about the whole system. It's broken and the corporate nature of the big privates is but a visible symptom of that.
The whole system needs to be rebuilt, along with K-through-12, incorporating AI. That's a big job. One that will take generations, and a new world as well. We've got our work cut out for us.
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