Your Money or Your Mission

University endowments in a bear market and a Trump crisis

I spent most of last week traveling to and from the United States for the annual meeting of the Midwest Political Science Association, which, despite its name, is a major national (even international!) gathering of political scientists. I should probably say “was”, because the meeting was noticeably subdued from prior years—there were still international folks there (I count, now!) but there were a lot fewer of them. The conference circuit is already feeling the Trumpian pinch, and it will only get worse from here.

I wanted to share a couple of thoughts with you in lieu of a bigger update. As you’ve probably heard, universities in the United States are in a tough spot right now. I’m not going to discuss the political issues or adjudicate different claims about some of the causes and putative causes—that’s a 2024 discussion. Right now, in 2025, the important thing to know is that universities make their money from three big streams:

• tuition

• sponsored research

• endowments

All three of these are in crisis.

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Let’s start with tuition. The growing xenophobia of the U.S. government and the heated anti-foreigner rhetoric of the U.S. government is deterring tourism and study in the United States. International students enrich the experience on many campuses; they have also come to form a major part of many universities’ business models (and even more so for specific types of degree programs, particularly business schools). Further, they tend to be disproportionately likely to pay full-freight tuition—far from crowding out U.S. students, international students have subsidized offerings for American students.

At this point, I would not be surprised / I would even expect that international student enrollment will plummet. Not only has the Trump administration all but said they don’t want foreigners to come to the USA, they have directly and extensively embarked on campaigns yanking student visas—in some well publicized cases, stopping students’ ability to finish doctoral degrees weeks before completion or nabbing students off the street. I want you to understand how bad this looks from abroad. Would you pay $80,000 per year for your child to study in, say, Romania under Ceaușescu? Or Belarus today? At the moment, the appearances are that international visitors and students are not protected by the regime but are targeted by it—that even getting a traffic ticket can lead to self-deportation. The risks may be small, in that “only” several hundred students had their visas revoked last week, but if you are embarking on paying—again—several hundred thousand dollars for a degree, exactly what degree of risk are you willing to take? Particularly if you view that as an investment in securing employment in the United States afterward—a route that now seems also unlikely.

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The attack on research is more obvious; you’ve seen it discussed a lot everywhere. In case you haven’t, you should also know that top universities do a lot of research for the federal government through grants from the National Institutes of Health, the National Science Foundation, and other agencies (including the late USAID!). The funding model was set up after the Second World War to make U.S. universities world leaders in research; it is now being dismantled with extreme prejudice. As I understand it, the threats to biomedical research—you know, a major emerging industry in which the USA has come to play a leading role—are particularly acute because the funding model for those schools is particularly reliant on federal grants.

The other day, on Substack, or perhaps the comment section on Marginal Revolution, I saw someone scoff at the idea that going after these funding streams could really dismantle U.S. research leadership so quickly. If a few weeks of Trumpian chaos could harm universities so much, they mused, were U.S. universities really that good to begin with? All I can say in response is that this is like suggesting that if someone dies after being shot in the head, how can we really know they were healthy to begin with? The assaults on funding are, yes, that bad—scientific research depends on stable funding to keep projects moving and specialized workers paid; without that stability, you can’t—literally—keep refrigerators on or monitors going or key personnel engaged.

Another fun thing is that foreign students, and yes that includes Chinese students, are key to U.S. research leadership. Bringing together the top minds of the world in the United States has been a constant boost to U.S. technological and cultural leadership. This is a profound gift the United States was given in the 1930s as a result of, essentially, Hitlerite violence—and it is being squandered. The damage already done is profound, but the damages will continue to accrue over years and generations as researchers adjust their expectations regarding the political stability of the United States and favor other destinations at the margin instead. For instance, China has genuinely good universities now, and instead of promoting a brain drain from China the policies of the Trump administration are now doing more than any CCP-led policy to promote Chinese talent remaining at home.

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Finally, there’s the endowments.

People love to talk about universities’ massive endowments. In reality, only a few dozen universities have substantial endowments at all; that tends to be nearly every university you’ve ever heard about, but for scale there are (depending on definition) three or four thousand institutions of higher education in the United States. Now, to be fair, U.S. world leadership in research depended on precisely those major institutions with large endowments, so they are disproportionately important, but unless you live in Princeton or Cambridge, MA, the nearest university to you likely is running tuition check to tuition check.

A quick rule of thumb for endowments: they are set up to provide about 4 to 5 percent returns per annum. That is: the classic endowment exists throw off money for a given purpose, determined by the donor, by providing returns, rather than by acting as a bank account. That’s why a hundred-million-dollar endowment isn’t really as big as it sounds—it’s not something from which you could extract $100,000,000 of value tomorrow, but it is instead just a way of generating four million dollars a year. That is roughly (very roughly) the budget for my previous employer’s political science department, not counting overhead or anything else. In other words, if you have a university with an endowment of $300 million or $400 million, the value of that endowment in yearly terms is roughly the budget of, say, a midsize city’s YMCA budget—not nothing, to be sure, but also not exactly a princely sum.

That background is important because I want to explain how grave attacks on universities by withholding federal funds are. The Trump administration famously sought to withhold $400 million in grants from Columbia University. I want to repeat here that I’m not going to adjudicate particulars; I just want to convey a sense of scale. A lot of folks wanted to know why Columbia couldn’t just make good those funds by using its endowment. It’s a fair question!

Again, just to give you a scale of how much would have to be replaced, $400 million is the amount of annual revenue generated by a $10 billion endowment. Columbia’s total endowment—last year for which stats were available—was $14.8 billion. In other words, making the university whole on this amount would require something like two-thirds the annual endowment income of the university.

This is not a stealth defense of Columbia. I’m simply laying out the napkin math about why—even if the board of trustees had wanted to fight—it would be impractical to try to replace federal funds one-for-one. After all, much of the endowment is locked up by donor intent and deeds of gift. Those can probably be broken in extremis, but I would observe that, first, courts exist to protect property; second, that violating donor intent now means it’s harder to secure donor gifts later; and third, that violating donor deeds of gift might open the door for future federal investigations, including by the IRS.

Again, though, this is not a stealth defense of universities. In some cases, this move might be worth it. Endowments exist to further universities’ mission, and in the case of existential threats to universities’ missions, there are reasons to make dramatic decisions. I don’t think that means that universities should liquidate endowments to save every job—again, we are talking about genuinely massive sums of money here; if any organization lost $4000 million in revenue, they’d be looking at temporary layoffs—but keeping together core personnel and funding legal defenses might be worth it. No less an establishment figure than former Harvard president Larry Summers suggested recently that these might be times that call for precisely those measures.

But here’s the really bad thing.

Back in February, say, assume your university had an endowment worth $10 billion. Now, at that scale, you’re not investing your endowments in mutual funds—the by-now-tired joke that Harvard is a hedge fund with an educational sideline has a glimmer of truth in it, to the extent that managing any fortune of that size means that you have to seek returns from unusual and exotic investments. (As a note: my impression is that the Harvard management team is actually bad at this relative to Princeton, for instance.) So that means top universities have wealth management funds that, yes, hedge against risk and seek high-reward, medium-risk investments through vehicles that look very different from nonprofits with endowments in the $50 million to $100 million zone. However. They are still exposed to, say, market valuations.

So. How’s the market doing?

Ah.

Selling assets in a bear market is a double whammy. Remember the scenario here: the university is, essentially, seeing grants it has already won be held hostage. So these are not smart decisions to spend money—these are driven by imminent necessity. That’s always a bad way to make financial decisions. But in this case, you can also guess with some certainty that assets are worth less right now than they will be later—maybe five years later, maybe 25 years later, whatever: universities have a functionally infinite lifespan. Selling assets in a bear market now means making universities permanently poorer. And if your impulse is to celebrate that—well, I don’t know how to reach you, but I also know that you’re the sort of person who will never be asked to be a custodian for institutions that, ultimately, need to be cared for.

Again, and I want to be plain, I am not saying that we shouldn’t ask more of university leadership and boards of trustees. I am, instead, saying that we need to understand what the ask really is and why even a university administration with the best will in the world might hesitate to make such decisions.

And now for the rug pull.

Ultimately, however, the real value of universities does not lie in their endowments. That’s just treasure. The real value of universities lies in their social role as places to seek and maybe even find truth—it lies, in other words, in their mission. Guarding the money at the expense of the mission is foolish:

Who steals my purse steals trash; 'tis something, nothing;
'Twas mine, 'tis his, and has been slave to thousands;
But he that filches from me my good name
Robs me of that which not enriches him,
And makes me poor indeed.

In ordinary circumstances, playing by the ordinary playbook is good enough. In extraordinary times, extraordinary measures may be required. It’s incumbent on boards and senior leadership to ensure their actions are aligned with the real interests of their institutions.

As all three legs of the stool supporting universities come under attack, thinking about how best to protect the mission and realize the long-term value of the enterprise is going to require more than just the typical reflexive plays of a stable world.