Why Is Harvard Getting $9 Million In Stimulus Money When It Has A $40 Billion Endowment?

Harvard is under attack for the $9 million in stimulus money it’s getting from the federal government. “America’s Richest University Grabs Nearly $9 Million In Taxpayer Aid,” blasted a Huffington Post headline yesterday. On Comedy Central last night, Trevor Noah said Harvard was “just being greedy.” Donald Trump Jr. tweeted that Harvard was getting cash that should have gone to “a small business that actually needs the money.”

But according to a statement emailed late yesterday by spokesman Jason Newton, Harvard won’t use any of its $9 million stimulus check to make up for losses it has absorbed since it moved classes online in mid-March. “Harvard is actually allocating 100% of the funds to financial assistance for students to meet their urgent needs in the face of this pandemic,” says the statement.

How did Harvard decide to pass all the money to students, who made the call, and when? Was it in response to criticism? “I’m not going to get into when the decision was made,” says Newton. Harvard declined repeated requests to interview President Lawrence Bacow and other university officials.

On March 27, Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, including a provision that directs $12.5 billion in federal aid to some 5,000 institutions of higher education. The amount each school could receive was based on a formula hastily devised by Congress.

The enrollment-based formula favors schools with large numbers of students on federal Pell grants, which are awarded to students from low- and moderate-income families. Harvard, including its business, law medical and other graduate schools, has 24,000 students. The undergraduate enrollment is 6,700. Sixteen percent of Harvard students are on Pell grants.

On April 9, Secretary of Education Betsy DeVos issued a letter allowing schools wide discretion in how they distribute the funds. But she urged them to give the most to students who had unexpected expenses as a result of the pandemic including food, housing, medical bills and technology needed to study online. Harvard didn’t lobby for the funds, according to a Harvard staffer who didn’t want to be quoted.

Harvard has become a lightning rod because it has the largest endowment of any school in the country. In June 2019, the endowment was valued at $41 billion. Why can’t Harvard just spend that money to help students and cover any of its own new expenses resulting from the pandemic?

In response to Forbes’ questions, a Harvard spokesman emailed a list of bullet points about restrictions on endowment spending. The short version: The endowment is made up of more than 13,000 separate funds. The “overwhelming majority” of those are restricted to spending designated by donors, like professorships and scholarships. Still, roughly a third of Harvard’s operating budget comes from an annual disbursement at the end of the fiscal year in late June. Last year that totaled $1.9 billion. In March, Harvard Magazine published an article that said the plunging market had brought the endowment’s value down to the mid-30-billion-dollar range. This year’s disbursement is guaranteed to be smaller than last year’s.

On Friday, Harvard CFO Thomas Hollister told the Harvard Crimson that Harvard distributes roughly 5% of the endowment each year. The Crimson also reported that Harvard president Bacow and two other university officials had sent an email to affiliates saying that this year, they would distribute “as much of the endowment as we possibly can.”

Harvard will need the money. It issued room and board refunds to students who left campus. At the same time, it has kept the dormitories and food services running for 800 students who couldn’t leave. Those students have moved into one-bedroom units with designated bathrooms where they can observe social distancing.

Students concerned that Harvard might not pay subcontracted employees like security guards, circulated a petition with 7,000 signatures. Harvard announced that it would pay all of its “core” staffers including administrative and service workers, even if they can’t do their jobs remotely, through May 28. Subcontracted workers are included.

What’s Harvard’s coronavirus bill thus far? Harvard isn’t saying. But on April 10, Claudine Gay, dean of Harvard’s Faculty of Arts and Sciences, which includes Harvard College, emailed faculty that FAS alone had already logged $30 million in “unforeseen expenses and lost revenue” because of the pandemic.

Harvard has imposed a series of austerity measures. On April 13, President Bacow announced a salary and hiring freeze, a freeze on discretionary spending and a review of capital projects. The following day, theCrimson reported that Bacow and two other officials would take 25% pay cuts, that deans, vice presidents and vice provosts would also have salary cuts and that layoffs and furloughs were possible.

Still, considering all of its self-imposed austerity measures and decision to give its entire federal grant to students, should a wealthy school like Harvard get any stimulus money at all at a time when many lower-prestige colleges are facing financial ruin? The vast majority of philanthropic giving to higher ed goes to a few elite schools. One example among many: hedge fund billionaire John A. Paulson donated $400 million to Harvard’s school of engineering in 2014.

So far there are no reports of elite schools turning down their stimulus checks. Princeton is getting $2.4 million and Yale is receiving $6.9 million. Princeton’s endowment of $26 billion comes out to $3.1 million per student, which is higher than Harvard’s $1.6 million.

“Harvard has to balance what’s in their private interest and what’s in the social interest,” says professor Ronald Ehrenberg, who directs Cornell’s Higher Education Research Institute. But the $9 million is certainly not a make or break sum for Harvard. “It’s just a drop in the bucket for them,” he says.

One piece of good news for Harvard: President Bacow and his wife Adele Fleet Bacow told the Harvard community on March 14 that they had tested positive for COVID-19. They have made a full recovery.

– Forbes