August 3, 2026

University Endowment Trends: Why 2026 Looks Nothing Like 2021

Glass financial tower beside a marble university column at dusk, symbolizing university endowments

Harvard just sold about a billion dollars of private equity stakes to a firm called Lexington Partners. Not because the investments were bad. Because Harvard, sitting on the largest endowment in the world, needed cash. That single fact tells you more about where university endowments stand right now than any headline return number does.

And the return numbers are actually good. According to the 2025 NACUBO-Commonfund Study, the 657 institutions it tracked posted a 10.9% average return in fiscal year 2025, on $944.3 billion in combined assets. Harvard returned 11.9%. Yale hit 11.1%. Princeton logged its best year in four, at 11%. On paper, this is a strong year. Underneath it, three forces are colliding: rising payouts, a punishing new federal tax, and a private equity market that suddenly won't give cash back.

The Headline Returns Look Great — Read the Fine Print

Public equities did the heavy lifting. The MSCI ACWI index returned 16.2% for the year, and NACUBO noted that no asset class posted a negative return in FY25 — a genuinely unusual outcome. Smaller endowments, which lean more heavily on public stocks, actually caught up to the giants this cycle.

But the 10-year picture is the number that matters for long-term planning, and it moved too: the trailing 10-year average annual return rose to 7.7%, up from 6.8% the year before. That's the figure boards use to set sustainable spending policy, so an uptick there has real budget consequences down the line.

Here's the part that should worry anyone tracking this closely: endowments are being asked to do more.

Institutions withdrew $33.4 billion in FY25, an 11% jump from the prior year
Endowment income now funds 15.2% of average operating budgets, up from 14% in FY24 and just 10.9% in FY23
New gifts fell 9.2%, to $14.0 billion — and smaller schools (under $50 million in assets) saw donations drop 26.5%

Put those together and you get a pattern: schools are pulling more out of endowments while less new money comes in the door. That's not sustainable arithmetic forever, even at 10.9% returns.

Where the Money Actually Goes

People assume endowment income mostly pays for buildings or big salaries. It doesn't. NACUBO's spending breakdown for FY25 shows student financial aid ate up 47.4% of endowment distributions — by far the largest slice.

Spending category	Share of endowment payout
Student financial aid	47.4%
Academic programs & research	17.7%
Endowed faculty positions	10.8%
Campus facilities operations	7.6%
Other institutional purposes	16.6%

"Endowments are there when times are tough, but the increased reliance on endowments to fund operating expenses is a trend worth watching carefully." — Kara Freeman, NACUBO President

That quote is the whole story in one sentence. Endowments were designed as a rainy-day cushion that compounds over centuries, not an ATM for annual budgets. When the withdrawal rate creeps up year after year — 10.9% of operating budgets to 14% to 15.2% in three years flat — you're watching an institution quietly change what its endowment is for.

The New Federal Tax Changes the Math Entirely

This is the part most coverage of "endowment trends" misses, and it's arguably the biggest structural shift in decades. In July 2025, Congress passed what's been nicknamed the "One Big Beautiful Bill," and it rewrote the excise tax on private university endowment income.

The old rule was simple: a flat 1.4% tax on net investment income, applying only to private schools with at least 500 students and $500,000+ in endowment assets per student. The new rule is tiered and much sharper:

Schools with $500,000–$750,000 per student: stay at 1.4%
Schools with $750,000–$2 million per student: jump to 4%
Schools with $2 million or more per student: pay 8%
The student threshold also rose, from 500 to 3,000 enrolled students, narrowing who's exempt

Public universities remain untouched entirely. This is a tax aimed squarely at a short list of wealthy private institutions — Harvard, Yale, Stanford, Princeton, MIT, Notre Dame among them — and it takes effect for tax years starting after December 31, 2025.

The dollar impact is not abstract. Harvard alone is projected to owe roughly $368 million a year once the 8% rate applies, according to CNBC's reporting on the bill. Stanford has cited a 21% effective jump in its tax burden. That's money that used to fund financial aid and research now routed straight to the Treasury.

A common misconception here is that this tax only dents the wealthiest schools' bottom lines. In reality, several institutions have already cited it — alongside frozen federal research grants — as a direct reason for 2025 hiring freezes and staff layoffs, well before the tax even took effect. The anticipation alone changed behavior.

The Private Equity Cash Crunch Nobody Saw Coming

Here's the piece that connects the tax hit to Harvard's asset sale. Elite endowments spent the last fifteen years piling into private equity and venture capital, chasing returns public markets couldn't match. It worked, for a while. By fiscal 2023, elite universities averaged 36.7% of their endowments in private equity, with roughly a quarter of those commitments still unfunded — meaning the school owes cash whenever the fund manager calls it.

That structure works fine when private equity firms are also returning cash regularly through exits and distributions. It stops working when dealmaking freezes and higher interest rates make selling companies harder. That's exactly what happened starting in 2022 and dragging through 2025.

The result: capital calls kept coming in, but distributions slowed to a trickle. Princeton's chief investment officer reportedly described it as the worst environment for private equity liquidity in more than four decades of investing — worse, in his framing, than anything since the 2008 financial crisis, according to reporting picked up by school finance outlets covering the story.

So what did the biggest names do? They raised cash the way any institution short on liquid assets does:

Harvard sold about $1 billion in private equity stakes on the secondary market, via Jefferies and Lexington Partners, and separately issued $1.65 billion in new debt in 2024
Yale explored selling as much as $6 billion of its private equity portfolio — one of the largest secondary sales ever contemplated by a university
Princeton issued a $660 million debt offering to fund campus needs while preserving investment positions

None of this means these endowments are broke. Harvard's fund is still worth $55.7 billion. But it does mean the "endowment as bottomless war chest" mental model is outdated. Liquidity, not total asset value, is now the binding constraint at the top of the sector — and that's a genuinely new dynamic for institutions that spent a generation treating illiquidity as a feature, not a risk.

What This Means If You're Not Harvard

It's tempting to read all this as an Ivy League problem. It isn't, entirely — the pressures just show up differently depending on endowment size.

Endowment size	Main pressure	Typical response
Under $100 million	Falling gift revenue, thin diversification	Lean on public equities, cut discretionary spending
$100M–$1 billion	Balancing spending needs with growth	Gradual shift toward liquid alternatives
$1B–$10 billion	Moderate PE exposure, tax exposure starting	Reassess unfunded commitment pacing
Over $10 billion	New 8% excise tax, PE liquidity strain	Secondary sales, new debt issuance

Smaller schools face a quieter but arguably scarier version of the same squeeze: donations down 26.5% at institutions under $50 million in assets, per NACUBO, with none of Harvard's scale or debt-market access to cushion the blow. A regional liberal arts college with a $40 million endowment can't just call Lexington Partners for a billion-dollar secondary sale. It has to cut programs or raise tuition instead.

Bottom Line

Don't confuse a good return year with a healthy endowment system. FY25's 10.9% return sits alongside rising spending pressure, falling gifts, and a new tax — the trend lines matter more than the single-year headline.
Watch the excise tax bracket your institution falls into, if you work in higher-ed finance — the jump from 1.4% to 8% at the $2 million-per-student threshold changes budget math for 2026 onward, not gradually but immediately.
Treat private equity allocation as a liquidity decision, not just a return decision. Harvard and Yale's secondary sales are the clearest signal yet that overcommitting to illiquid assets carries real cash-flow risk, even for the wealthiest institutions on earth.
If you're evaluating a school's finances (as a prospective student, employee, or donor), look at the spending rate trend and gift revenue trend together, not the endowment total in isolation. A $2 billion endowment with falling gifts and rising withdrawal rates is a different story than one holding steady.

Frequently Asked Questions

Why did Harvard and Yale sell private equity stakes if their endowments are so large?

Their endowments are large but heavily illiquid — over a third of assets locked into private equity funds with ongoing capital call obligations. When distributions from those funds slowed starting around 2022, both schools needed cash for operations and capital calls, so they sold stakes on the secondary market rather than wait for market conditions to improve.

What is the new college endowment tax and who has to pay it?

A July 2025 federal law replaced the old flat 1.4% excise tax with a tiered system: 1.4% for schools with $500,000–$750,000 in endowment assets per student, 4% for $750,000–$2 million, and 8% for $2 million or more. It only applies to private institutions with at least 3,000 students; public universities are exempt entirely.

Does a bigger endowment mean a university is financially secure?

Not necessarily. A large endowment tied up in illiquid private equity can leave a school cash-poor even while its total assets look enormous on paper. That's precisely the situation several elite universities faced in 2025, forcing asset sales and new debt issuance despite endowments worth tens of billions of dollars.

How much of endowment spending actually goes to financial aid?

Nationally, financial aid consumed 47.4% of endowment distributions in fiscal 2025, according to NACUBO — by far the largest category, ahead of academic programs, endowed faculty positions, and facilities combined.

Will the new endowment tax affect financial aid or tuition?

It's a real risk. Analysts and school administrators have flagged that redirecting hundreds of millions of dollars toward the new excise tax could pressure institutions to reduce financial aid or raise tuition to offset the loss, particularly at schools facing the top 8% bracket.

Is a 10.9% endowment return actually good?

It's solid relative to history, but it's not exceptional — it's below FY24's 11.2% and well under a decade of very strong markets. Given that spending rates and tax burdens are rising simultaneously, this return level is closer to "necessary to stay even" than "windfall," for institutions leaning harder on endowment income each year.