When Princeton University announced in February that it would pursue “more targeted, and in some cases deeper, reductions over a multiyear period,” the news landed with the force of a paradox. Here was an institution sitting atop a $35.7 billion endowment — the fifth largest in the nation, telling its campus community it needed to cut.
Princeton President Dr. Christopher Eisgruber had asked units across the university to make 5 to 7 percent cuts to their budgets, citing an increase in the endowment tax the institution faces and federal threats to research funding. Within months, all departments and university units were asked to prepare separate plans for 5 percent and 10 percent permanent budget cuts to be phased in over three years.
To the average observer — and to many lawmakers — the question was obvious: How can a university worth tens of billions of dollars plead poverty?
As elite institutions announce layoffs, hiring freezes, and program cuts, a closer look at the difference between what institutions own and what they can actually spend reveals a more complicated financial picture than headline numbers suggest.
The answer lies not in the size of an endowment, but in what portion of it any institution can actually touch.
The Restricted Reality
Most people imagine an endowment as a vast reservoir of cash, available to be drawn upon at will. The reality is closer to a gallery of locked rooms, each with a donor's name above the door and a specific purpose written into the deed.
According to Ken Redd, senior director of research and policy analysis at the National Association of College and University Business Officers, endowment funds account for about 15 percent of institutions' operating budgets on average, a figure that varies considerably by institutional type. Private colleges average around 13 percent, as do public university systems. But public colleges and universities with institutionally related foundations draw roughly 24 percent of their operating funds from their endowments — a dependency that makes them especially vulnerable when investment returns soften or federal policy tightens.
Those averages also obscure a harder structural truth; the vast majority of endowment dollars cannot be redirected, regardless of the urgency.
"Most donors want their gifts permanently restricted for a specific purpose or cause, such as student financial aid," Redd said. "By definition, these would be called permanently restricted endowments."
Less common are gifts restricted for a defined time period — what the field calls temporarily restricted funds. In either case, the restrictions carry legal weight.
"Most endowment gifts have restrictions that are set by donors using laws or contracts, usually called gift agreements that are governed by the laws of the states in which the school is located," Redd said. "As such, they cannot be unilaterally changed by the schools."
To redirect a restricted fund, an institution would have to work with the original donor or their descendants, and potentially with the state attorney general, to amend the original gift agreement. That is not a process suited to a budget emergency.
Endowments consist of up to thousands of individual accounts, the vast majority of which are legally restricted by donors. These restrictions often designate support for specific purposes like expanding financial aid, supporting the chair of a particular academic discipline, or fueling groundbreaking medical and technological research.
The data from NACUBO's most recent study underscores how entrenched this dynamic has become. In fiscal year 2025, Redd noted, approximately 84 percent of new gifts to endowments were donor-restricted. The pile of locked rooms, in other words, keeps growing.
Across higher education, roughly 40 percent of endowment assets are subject to permanent restrictions, 30 percent are temporarily restricted, and 29 percent are reserved for quasi-endowment use. The result: only a sliver of even the wealthiest institution's endowment is available for general operating needs at any given time.
Yale acknowledged as much when it announced its own budget tightening, with university administrators emphasizing that most of its endowment consists of donor-restricted funds dedicated to financial aid, research, and academic programs. At Harvard, the framing was equally direct. The overwhelming majority of funds making up Harvard's endowment are donor-restricted, and even with endowment support, Harvard must fund nearly two-thirds of its operating expenses — $6.8 billion in fiscal year 2025 — from other sources, such as federal and non-federal research grants, student tuition and fees, and gifts from alumni, parents, and friends.
Princeton's endowment includes $5.8 billion dedicated specifically to student financial aid. That money cannot be redirected to cover a research deficit, a faculty salary, or a capital project — no matter how urgent the need.
If the restricted/unrestricted distinction is the structural constraint, the liquidity problem is the immediate crisis.
Princeton's budget is highly sensitive to changes in endowment value, with 65 percent of the university's budget coming from the annual endowment draw. That dependence — extraordinary even among peer institutions — means that a downward revision in expected returns carries real-world consequences faster than at schools with more diversified revenue.
Princeton recently lowered its long-term endowment return expectations from 10.2 percent to 8 percent annually, forecasting an endowment value $11.3 billion lower than past projections had predicted for the next decade. That gap is not an abstraction. It translates directly into fewer dollars available to pay salaries, fund programs, and maintain the institutional commitments Princeton made during a decade of expansion.
The deeper problem is where those endowment dollars actually live. Yale and Harvard hold the highest unfunded private equity commitments at $8.1 billion and $8.2 billion respectively, and liquidity risk rankings show Yale in the second-highest position among elite institutions at 62.1 percent, followed by Harvard at 53.2 percent and Princeton at 51.2 percent.
In plain terms, more than half of the investable assets at some of the world's most prestigious universities are locked up in private equity, hedge funds, real estate, and other illiquid positions that cannot quickly be converted to cash.
Harvard issued $1.2 billion in municipal bonds in early 2025 and shifted toward secondary sales of its private equity holdings, while Yale moved to sell up to $6 billion, nearly 15 percent of its $41 billion endowment. Bloomberg reported that top universities sold $4 billion of bonds to raise cash in 2025 alone, while Harvard moved to sell $1 billion of its private equity holdings and Yale entered talks to sell $2.5 billion of its private equity funds. Experts point out that these are not the maneuvers of institutions casually managing surplus wealth, but are the moves of institutions racing to generate liquid capital to cover operating needs.
The Stability Projection Problem
The gap between headline endowment figures and accessible capital matters because institutions have long used the former to project a stability they may not fully possess.
Bond rating agencies, accreditors, donors, and rankings publications all treat endowment size as a proxy for institutional health. In college marketing, the figure appears in presidential speeches, bond prospectuses, and national rankings profiles. It signals permanence, excellence, and security.
Asked whether current reporting conventions give an accurate picture of financial health, Redd noted that NACUBO does not collect information about the use of endowments in bond issuances or public communications. That evidentiary gap is itself revealing: the sector's primary research body does not systematically track how institutions leverage endowment figures in their public stability narratives. Whether disclosure standards for restricted versus unrestricted breakdowns should be strengthened is, Redd said carefully, a question governed by state law and individual gift agreements — not one on which NACUBO takes a position.
University financial statements include a calculation of liquidity available within a year, and many universities include the following year's endowment payout in this figure — resting on the assumption of continuity of operations that restricted endowments can be regarded as useful in the future in the same fashion as in the past. But restricted funds cannot be used to meet every cost of a present crisis.
That assumption has been severely tested since 2025. The new federal policy environment — including dramatic increases in the endowment excise tax and threatened cuts to research funding — has exposed what the headline numbers have long concealed: the distinction between what an institution has and what it can spend is not a fine-print technicality. It is the difference between solvency and scramble.
Even the wealthiest institutions don't have enough unrestricted funds to routinely absorb massive, sustained cuts without irreparably draining their endowments.
What It Means Beyond the Ivies
The vulnerability of elite institutions carries a cautionary lesson for the broader landscape of American higher education, where thousands of colleges have endowments measured in tens of millions rather than billions and where the gap between reported assets and available liquidity may be proportionally even wider.
At Duke, the $12.3 billion endowment had nearly $3.8 billion in unrestricted funds as of fiscal year 2024-25 — roughly a third of the total — meaning that nearly two-thirds was unavailable for general use no matter what crisis arose. For smaller regional institutions, HBCUs, and community colleges without the donor pipelines or brand equity to build large endowments, the stakes are more stark still.
Experts point out that the financial resilience gap between institutions that can weather this storm and those that cannot is not simply a function of endowment size. It is a function of liquidity, flexibility, and the proportion of resources that remain genuinely within an institution's discretion — factors the headline number never reveals.
