One year ago, Harvard University’s endowment stood at $36.9 billion and was the largest in academia. Between the fiscal years of 1990 and 2008, the endowment grew at an average rate of 14.3 percent. But the University has recently fallen on hard times and now faces a $220 million budget deficit and a 30 percent drop in its endowment.
“There are going to be a hell of a lot of layoffs. Courses will be cut. Class sizes will get bigger,” said a Harvard insider to Vanity Fair.
Nearly 20 percent of the Faculty of Arts and Sciences’ budget has already been cut. Further scale backs include the closing of a library, trimming residence hall budgets by 25 percent, and no longer offering hot breakfasts or shuttle services.
The University had been planning a $1.2 billion building project in the Boston neighborhood of Allston. The Allston Science Complex was scheduled to be completed by 2011 but is now on hold.
Since 1980, Harvard has acquired over 6.2 million square feet of land. The cost of these developments totaled $4.3 billion. But the University is now facing its largest financial crisis in its 373 year history.
In December, the University sold $2.5 billion in bonds and increased its total debt to more than $6 billion. Paying off the debt will cost Harvard $517 million a year through 2038.
The recent blow to Harvard’s endowment is a result of both poor investing and the withdrawal of endowment funds to pay for University operations. Vanity Fair estimates that it will take over a decade for Harvard’s endowment to return to last year’s numbers.
Harvard’s current financial crisis is leading some to point fingers at its former president and current White House National Economic Director, Larry Summers. The downfall eerily mirrors the recent mismanagement and corruption scandals on Wall Street.
“At some point in the last five years, the men and women who run Harvard convinced themselves that the endowment would grow at double-digit rates forever,” writes Nina Munk of Vanity Fair. “If Harvard were a publicly traded company, those people would have been fired by now.”
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