Could Harvard, the oldest university in America, beat Trump in their battle?

Harvard University filed a lawsuit against Donald Trump’s administration on Monday, accusing the federal government of trying to wreck the university’s financial lifeline.

Trump has frozen over $2.2 billion in federal research money meant for the school. The university claims this is part of a political attack dressed up as an anti-antisemitism campaign, but in reality, aimed at crushing elite institutions over their race and gender programs.

The lawsuit is a direct response to a sudden letter sent by the government that blocked ongoing contracts. That letter, sent without warning, halted critical research. The administration’s argument is that schools like Harvard are pushing agendas that don’t align with “American values,” and they’re using federal cash to do it. 

Trump has also hinted that Harvard should lose its tax-exempt status. If that happens, the school would be taxed like a business, and donations would take a hit. Trump has openly said he might want to pull “every last penny” from the university.

Trump cuts federal funding and threatens taxes

At the center of this legal battle is nearly $687 million in annual research money that Harvard receives from federal agencies. Most of it comes from the Department of Health and Human Services. Other big chunks are sent by NASA, HUD, and even intelligence agencies. 

Right now, researchers are getting “stop-work” notices. Projects already affected include studies on Lou Gehrig’s disease, a $60 million tuberculosis program, and research on radiation sickness and space travel.

The university warned that many of these will “come to a halt midstream” if the freeze continues. Last month, Harvard imposed a hiring freeze. Layoffs, lab shutdowns, and cutting projects are all being discussed. In 2023, Harvard used $489 million of its own money to support research. That can’t make up the gap.

The lawsuit also raises concerns that the IRS might yank the school’s tax-exempt status. That’s something it has never faced. If it loses the exemption, Harvard will be taxed on its tuition revenue. While the school could deduct salaries and expenses, donations would be taxed.

Samuel D. Brunson, a professor at Loyola University Chicago who studies nonprofit tax law, said the loss “would reduce the number of donors, the amount that donors gave, or both.”

Republicans are also coming after endowments. Vice President JD Vance, who used university funding to attend Yale, now wants to raise the tax on endowment income from 1.4% to 35%. Trump’s tariffs could also increase costs. And a drop in international students would be another blow.

Harvard struggles to protect its billions

At the end of its last fiscal year, Harvard held $64 billion. That’s more than the entire state budget of Massachusetts. More than $53 billion of that is in its endowment. The rest comes from tuition, real estate, donations, and unrestricted investments. But the endowment isn’t one giant pool of cash. It’s split across more than 14,000 individual funds, many with restrictions from donors.

About 80% of the endowment is restricted. That’s more than what schools like Yale and Princeton deal with. Even though former President Barack Obama and ex-Harvard President Lawrence H. Summers have pushed the school to tap into the fund, it can’t just pull out cash freely.

Each year, Harvard pulls out 4.2% to 6.1% of the market value of the endowment. In 2024, that was about $2.4 billion. The school’s operating costs are more than $6 billion a year. So while the school has massive money, most of it is locked behind donor rules.

Harvard’s real estate is also worth over $1 billion. Its general operating account has billions in unrestricted cash. Around 20% of its revenue comes from student tuition, room, and board. But research funding from the feds makes up around 11%. And that’s what Trump is cutting.

Dr. Lawrence S. Bacow, who served as Harvard’s president during a past crisis, said in meetings that raiding the endowment now would have long-term damage. Still, even some insiders say this is the kind of moment that might justify it. Drew Gilpin Faust, another former president, said the fallout from Trump’s funding cuts could spiral far beyond the school.

Harvard hasn’t revealed its full backup plan. But shrinking is clearly on the table.

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