The Illusion of Financial Security

The writer is a former president.

When this year’s cascade of cuts and layoffs began rolling through higher education, the headlines came fast and surprising. Elite universities—both public and private—were announcing serious financial difficulties: Harvard posting a deficit. Stanford, announcing hundreds of layoffs. The University of Chicago cutting budgets and selling assets. Arizona, Nebraska, Oregon, Utah, slashing programs.

The easy explanation is political. The administration in Washington is at best rewriting the compact between the federal government and higher education and at worst deliberately conducting an assault on it.

Either story would be incomplete. What this moment has revealed is that even the nation’s most elite research universities are more fragile than anyone imagined.

For decades the assumption held that scale, brand, endowment wealth, and research prowess conferred a kind of financial immunity. Turns out, they do not. The administration’s actions didn’t create the current distress; they exposed structural weaknesses that had been building quietly for more than a decade.

Between 2010 and 2023, data from those universities would have told a consistent story if anyone cared to look: operating margins deteriorating, sometimes dramatically; primary-reserve ratios—financial breathing room measured in months—shrinking; debt rising faster than assets; research expenditures growing faster than the grants and contracts that fund them; high overhead costs growing faster than reliably recurrent operating revenues.

By the time policy winds shifted in 2025, all were showing unmistakable signs of fiscal strain. Harvard had an adjusted operating margin approaching negative 90 percent, and research grants covered barely half its research expenditures. Stanford’s student-facing expenditure per FTE had ballooned to $166,000—nearly double peer norms—while its research-grant growth lagged peers by three percentage points annually. Cornell and Brown were running chronic structural deficits masked by investment gains. The University of Chicago, with roughly $6 billion in debt, acknowledged that its liabilities exceeded its liquid financial assets.

These are not the symptoms of institutions suddenly undone by Washington. They are the footprints of long-term structural imbalances, a mismatch between cost structures, revenue composition, and operating discipline.

Elections have consequences. No doubt. In this case, they hit exactly where these universities were most exposed, removing enough in annual revenue to turn marginal budgets into multimillion-dollar shortfalls.

But the truth is simpler, and harder: Healthy institutions absorb shocks; fragile ones fracture.

Because these universities had been running on thin operating margins, with rising debt service and inflexible cost bases, even a modest external shock triggered a cascade of cuts.

So why does this matter?

It matters because elite universities contribute immeasurably to the nation’s health, well-being, and economic advance, and the impacts on the elite will cascade down the higher education food chain, landing hardest on institutions least able to manage it and ultimately on their students.

To make up for their losses, elite universities will likely expand their undergraduate classes and dig deeper into their applicant pools, preferring students who can pay a higher share of their sticker price. They’ll balance their books.

But in doing so they will raid the next tier, which will in turn raid the one beneath it. The net effect will cascade through the system: a downward enrollment shock landing hardest on institutions least able to bear it—the regional publics and less-endowed privates that educate the largest, most economically diverse share of students.

The lesson is about management, and it extends beyond the elite institutions.

Elite universities overextended themselves in sprawling research portfolios, academic programs, amenities. They grew by addition, not substitution, layering new initiatives atop old ones rather than pruning or consolidating. They built for perpetual expansion. But higher education’s physics no longer favors that model.

Massively negative adjusted operating margins reveal how dependent they became on volatile revenue sources, their soaring debt levels on how much they assumed those revenue sources would not only continue but grow.

If higher education is to regain its footing, it must abandon the illusion that external forces alone determine its fate. Federal funding cycles, demographics, markets—they will all change again. What cannot change is internal readiness: cost discipline, revenue diversification, and clarity of mission.

When historians look back on 2025, they’ll mark it as the year higher education’s financial myths collapsed: Even the most prestigious universities can find themselves staring down deficits once thought unthinkable. Endowment size and research volume do not equal financial health. Most universities are nothing like the ones that feature prominently on cable news and in the pages of the NYT. For middle- and working-class Americans they are vital bridges to opportunity and at the greatest risk from shocks that trickle down, irrespective of where they are initially applied.

And, hopefully, the lesson will be learned that decline is not destiny. The structural forces that created this crisis were visible all along.

What comes next depends on whether the sector finally chooses to see them.