Top Universities Detail How Funding Cuts and Taxes Cloud Future

Colleges and universities like the Massachusetts Institute of Technology are reassessing spending after threats to federal funding. (Joseph Prezioso / AFP / Getty Images)

Key Points

• A new excise tax increased to 8% from 1.4% on university endowments will significantly reduce funds for financial aid, research, and teaching.
• Yale’s endowment, valued at $44.2 billion, could face an annual tax of about $300 million due to the new 8% excise tax.
• 5Columbia University used unrestricted endowment funds to create a Research Stabilization Fund after $400 million in federal grants were canceled.

The effects of President Donald Trump’s attacks on elite universities are detailed in annual financial reports now being released by the nation’s top institutions, including Yale, Columbia, the Massachusetts Institute of Technology, and Harvard.

Threats to federal funding, and a substantial hike in an excise tax on net investment income enacted into law last summer, are forcing private colleges and universities to reassess spending, and have prompted hiring freezes and layoffs, among potential cuts to academic programs and financial aid.

An increase in the excise tax to 8% from 1.4% for Yale “will mean significantly less money available to spend on financial aid, research, teaching, and other mission-related activities” and will have a “detrimental impact” on the amount of mission-related support provided by the endowment, according to a financial report for the fiscal year ended June 30.

The 8% tax applies to institutions with endowments in excess of $2 million per student beginning in the fiscal year starting July 1, 2026. Those with endowments between $750,000 and $2 million per student pay a 4% tax on net investment income, and those with endowments between $500,000 and $750,000 per student pay 1.4%.

In a Sept. 30 email to faculty and staff, Yale administrators said the annual tax could amount to “about $300 million,” according to an Oct. 1 article in the Yale Daily News, the student newspaper. A spokeman for Yale didn’t immediately comment on the tax amount.

Yale’s endowment returned 11.1% for the fiscal year ended June 30, 2025, increasing the value of its endowment to $44.15 billion.

Columbia University was among the first to come under U.S. government fire for alleged antisemitism on its campus in March, leading to the canceling of $400 million in federal grants and contracts. In July, the university agreed to several government demands—including the appointment of a senior provost to oversee the Middle East department—in exchange for restoration of the funding.

In its annual report for the 2025 fiscal year, the toll of this experience was evident. The university may have recorded $1.3 billion in government grant revenue—the same as a year earlier—but that doesn’t “adequately capture the level of strain experienced by the research enterprise in the third and fourth quarters,” Anne Sullivan, Columbia’s executive vice president for finance, wrote in a Thursday letter to the university community.

Because of the funding disruptions, Columbia tapped “certain centrally managed, unrestricted endowment funds” for its Research Stabilization Fund. That fund provided more than 500 internal grants to researchers in June and September, Sullivan said. At the same time, the university scaled back some “endowment-dependent activities,” in the central administration.

The university posted a 12.4% return on its endowment for the 2025 fiscal year, bringing the value of its endowment to $15.9 billion. Because the amount falls below $500,000 per student, Columbia isn’t subject to the new excise tax.

In fiscal year 2025, an 11.4% return for MIT’s endowment brought its value to $27.4 billion, a level that puts it into the top excise tax bracket alongside Yale and Harvard, which also expects the tax to cost it about $300 million.

An 8% tax on MIT’s investment income will divert “investment returns on gifts from supporting cutting-edge research and the costs of education,” Glen Shor, executive vice president and treasurer at MIT, wrote in the university’s fiscal year 2025 financial report.

At the same time, “there have been efforts to ask us to continue the work of research and exploration on causes important to our nation without adequate funding for the laboratories, equipment, computing, and staff that are indispensable to these endeavors,” Shor wrote.

Write to Abby Schultz at abby.schultz@barrons.com