Harvard had a financial responsibility score of 2.8, well over the passing 1.5 required by the Education Department, in fiscal year 2023.
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The Education Department announced Friday that it placed Harvard University on heightened cash monitoring, a designation that allows greater federal oversight of institutional finances and is typically reserved for colleges in dire financial straits.
By all accounts, Harvard, with its $53 billion endowment, is not.
“It’s harassment,” said Jon Fansmith, senior vice president for government relations and national engagement at the American Council on Education. “Harvard has the money, yes, but it is adding a headache. It’s adding staff. It’s interfering with students’ ability to access federal financial aid … The government’s making it harder for Harvard to support low-income students, which speaks to exactly what the administration’s goals are here—they’re not to help students, they’re not to improve education, they’re not even to address what they see as concerns at Harvard—they’re just to attack Harvard.”
Institutions placed on heightened cash monitoring are asked to put up a letter of credit that serves as collateral for the Education Department if the institution closes, or to award federal financial aid from their own coffers before being reimbursed by the department, explained Robert Kelchen, head of the Department of Educational Leadership and Policy Studies at the University of Tennessee at Knoxville. Harvard has been asked to do both.
According to a Friday news release from the Education Department, Harvard must put up a $36 million irrevocable letter of credit or “provide other financial protection that is acceptable to the Department,” department officials wrote.
“Students will continue to have access to federal funding, but Harvard will be required to cover the initial disbursements as a guardrail to ensure Harvard is spending taxpayer funds responsibly,” officials wrote.
The federal government froze $2.7 billion in federal grants for Harvard after the university rejected its sweeping demands in April. Harvard sued, and a judge ruled earlier this month that the freeze was illegal. The university has reportedly received some of the frozen funds, but the Trump administration says it’s still hoping to cut a deal with Harvard.
The release says three events triggered Harvard’s heightened cash monitoring designation: a determination by the Department of Health and Human Services that Harvard violated Title IV of the Civil Rights Act of 1964 by allegedly allowing antisemitism on campus, accusations that the university isn’t complying with an ongoing investigation by the Office for Civil Rights, and the $1 billion in bonds Harvard has issued to make up for pulled federal funding. Harvard did not respond to Inside Higher Ed’s request for comment Friday.
“Today’s actions follow Harvard’s own admission that there are material concerns about its financial health. As a result, Harvard must now seek reimbursement after distributing federal student aid and post financial protection so that the Department can ensure taxpayer funds are not at risk,” Education Secretary Linda McMahon said in a statement. “While Harvard remains eligible to participate in the federal student aid program for now, these actions are necessary to protect taxpayers.”
The department also pointed to layoffs at Harvard and a hiring freeze instituted in the spring. Several other wealthy colleges have frozen hiring and shed staff this year, in part because of the administration’s actions related to federal funding. A few other universities have either issued bonds or taken out loans to get immediate cash. But so far, the department has made no public mention about putting those colleges on heightened cash monitoring.
As of June 1, 538 colleges and universities were on heightened cash monitoring, federal data showed. About one-third of those colleges are private nonprofits, while about 42 percent are for-profit institutions. Most of the institutions—464 of them—are based in the U.S.
Many on the list are private institutions that have low financial responsibility composite scores, Kelchen said. This test assigns institutions a score between -1.0 and 3.0 based on the institution’s primary reserve ratio, equity ratio and net income ratio. To be considered financially responsible, an institution must score at least a 1.5, which Harvard does.
During fiscal year 2023, the latest for which data is publicly available, Harvard’s financial responsibility composite score was 2.8. Harvard’s estimated primary reserve ratio in fiscal year 2023 was 7.6, meaning that the university could operate for about seven and a half years by spending only its existing assets. By comparison, Hampshire College, another private, nonprofit college placed on heightened cash monitoring with a financial responsibility composite score of 0.6, had an estimated primary reserve ratio of 0.3, meaning it could continue operations for about four months before running out of expendable assets. Drew University, another institution on heightened cash monitoring and also with a financial responsibility composite score of 0.6, has a primary reserve ratio of -1.06.
But beyond the financial responsibility score, there are plenty of reasons an institution can end up on heightened cash monitoring. Some institutions, including Hampshire and Arkansas Baptist College, were put on the list due to a late or missing compliance audit. Others have been put on the list while the department reviews their programs, or because their accreditation was revoked. But, “the department can also just specify that an institution is not financially responsible,” Kelchen said.
The political motivation behind the move is clear, Fansmith said.
“To the extent that there is a problem—and to be clear, there are real problems—it’s not Harvard’s ability to pay their bills or meet their obligations. That’s a problem this administration has created,” he said. “They caused a situation, and then they are blaming Harvard for taking reasonable steps to address that situation. It’s also ironic when they send letters to Harvard using terms like ‘enormous’ and ‘massive’ and ‘colossal’ to describe Harvard’s endowment, and now they’re suddenly determining that they’re worried that Harvard is at financial risk … It is absolutely Orwellian.”
