Drew Gilpin Faust and the Incredible Shrinking Harvard

By Richard Bradley | Boston Magazine |

For her first commencement address as president of Harvard University, just a year ago this month, Drew Gilpin Faust spoke in defense of money. The school’s endowment, swollen by years of double-digit returns, had grown to almost $37 billion. As a result, Faust explained to her audience, it had become "something of a target, publicly both envied and maligned." Politicians like GOP Senator Charles Grassley were proclaiming that Harvard had so much money, it had a moral obligation to spend down its endowment—then the largest in the world by the comfortable margin of $15 billion or so.

Yet Harvard was not as well-off as it might seem, Faust said. True, the endowment was big. But it supported a growing institution of great public import. Harvard had 20,000 students and 16,000 employees. It contained "a huge and very costly research enterprise," satellite campuses around the globe, and "libraries and museums that house priceless collections of books, manuscripts, artworks, cultural artifacts, and scientific specimens." Paying for it all required staggering sums: To meet its $3 billion annual budget, the university relied on $1.4 billion a year in endowment payouts. Take away that easy cash, and Harvard would be—to paraphrase—up a creek.

If the endowment weren’t so enormous, Faust concluded, the university would face a choice: Seek more money from alumni and the federal government, or "do less—less research, less teaching, at a lesser level of quality."

Nobody, of course, really expected that to happen. But today that is exactly the choice Harvard confronts.

Last November 10, with the economy and the Dow in free-fall, Faust e-mailed a worried letter to the university community. "Harvard is not invulnerable…," she wrote. "We need to be prepared to absorb unprecedented endowment losses." Just how bad was it? Faust couldn’t say: Most of Harvard’s endowment was tied up in illiquid investments whose values were fluctuating (i.e., plunging) daily. But Moody’s, the financial ratings firm, was predicting a 30 percent decline for university endowments for the fiscal year that ends this month. In a subsequent letter, Faust went further, warning that a drop so precipitous seemed probable.

Such a plunge would claw the endowment back by more than $11 billion. Subtract the endowment’s $1.4 billion contribution to the university’s operating costs for this year—a contribution paid for in previous years by endowment returns, but which this time would represent a withdrawal—and Harvard would be left with $24.4 billion. As the old saying has it, "A billion here, a billion there, and pretty soon you’re talking about real money." Especially since, up until recently, the university’s expenses had grown as fast as its account balance. Over the past decade, Harvard spent money—on new construction, planning for a multibillion campus in Allston, land purchases, a major expansion of the professoriate, new financial aid programs, and general bureaucracy creep—as if the good times would never end. Combined with the shrunken endowment, that profligacy has Harvard facing ongoing deficits and needing to make budget cuts of hundreds of millions of dollars.

While the failed presidency of Lawrence Summers generated  more headlines, this quiet crisis is actually a greater threat to Harvard. The university has been so rich for so long that most of its denizens can’t remember a time when money was a concern. While Harvard officials are doing their public-face best to downplay the problem, the numbers don’t lie, and this economic crunch will leave the school a profoundly changed place. Harvard will have to become smaller and academically more modest, and as it does it will chafe at having grand plans without the resources to fund them. For the first time in decades, it will worry about merely paying its bills. The university will have to decide: If it is no longer so rich that it doesn’t have to make choices, what does it really value? What are its priorities? It won’t be a comfortable debate.

"We are in trouble," says one Crimson professor. In the aftermath of deep and damaging cuts, "there is a real chance that Harvard will no longer be considered the best there is."

As many around campus are saying these days, this isn’t what Drew Faust signed up for. But then, no one at Harvard anticipated its current state of affairs. Ever since taking over from the outsize Summers, Faust has been a figure of modest ambitions and subdued presence. To lead Harvard through this transition, she will have to grow in stature. Whether she can is an urgent—and open—question.

  • Fearful

    Harvard Law School is in dire financial straits with crushing financial commitments–a tuition-waiving public service initiative, an expensive, perhaps unnecessary building project, and faculty expansion–necessitating a staff layoff in the several dozens this summer, with more to come next year, and slashed budgets. This despite the School's completing a successful, record-breaking fund raising campaign last fall.

  • Lisa

    Faust is not only from Virginia, she is from money in Virginia. In my interactions with her, I got the sense that this background made her quite bored and dismissive when discussions of money came up. I'm talking about mundane things — childcare subsidies, negotiating faculty salaries, etc. For all her commitment to diversity, when any of these issues turned to talk about money, she appeared quite disdainful, as if all this were quite crass and not worthy of Harvard faculty. If my read is correct, she must be incredibly uncomfortable dealing with the current situation — not to mention uniquely unqualified to handle it.

  • Schuyler

    It is insane that Harvard is cutting funding for science and the rest of its campus while granting free tuition to those who are in the middle class and above.

  • danny

    Harvard ought to feel what it's like to suffer. That dumb school deserves this completely. Stupid Harvard, like anyone should give a darn what happens to that dumb school. It's really good to be honest to all you readers there, Harvard stinks and it ought to be. It's undeserving of its fame and it deserves to be poorer than poor. Poorer than the lowest college there is in the country. I hope Harvard burns in hell.

  • Christine

    Thoughtful people are trying to digest the degree to which Harvard was complicit in the financial meltdown in the larger economy, with its graduates enlisting so readily in the group- think of Wall Street that has caused so much human suffering. One is inclined to beleive that Harvard selected a particularly compliant sort of thinker who jumped through all the hoops to present Harvard with a Harvard-eligible resume. With all the emphasis on the status of Harvard, it is not surprising that the next career step would be high-flying Wall Street, where arrogance knew no bounds: the Best and Brightest they claim to be, as though an Ivy League degree were some sort of certification. Harvard has sustained a major hit to its reputation. Obviously, it selects for herd-thinkers and it's undergraduate education does nothing to change that. In the current state of the world I am very grateful for the luster a UC Berkeley College of Engineering degree confers. It's a question of values. Harvard

  • Xi

    The level of bitterness in these comments makes you wonder…

  • Saddiq

    the welcoming ice cream party you spoke of? They ran out of ice cream moments after it started….the crowd was underestimated. Perhaps a metaphor for her presidency.She acknowledges she got the job because she is a woman. At least two people on campus will say it.

  • Christine

    Second Wow. The "luster a blah blah blah degree confers?" Just can't resist a snicker there–it never ceases to amaze me how it's always these types that won’t ever miss an opportunity to grandiloquently name drop whatever school they attended who are the most eager to denounce the name brands located one tier of prestige above their own. Guess their not as lustrous degrees didn't buy them the self awareness to detect the irony in how their petty resume flashing in fact attests to the hold of status symbols like Harvard over the collective consciousness. Which offers insight on another point addressed in the article. Might Harvard have overplayed its hand in its spending ambitions not simply because it was rich and thought it could afford to but because being the anointed holy grail of the aspirational elite means it couldn’t afford not to? Perhaps behind the drive to have it more and bigger than everybody else is the fear that without display of overwhelming dominance, Harva

  • Average

    Wow, you're a jackass. Harvard produces some of the WORLD'S most important science and technology. It employs a huge percentage of people in Boston (hundreds of thousands). Do us all a favor and go kill yourself. You're a useless vestige.

  • Joe

    Harvard made a ridicule of itself by ousting Summers. That points to a deep problem with many on the faculty who made that happen knowing full well that it is not an honest endeavor. Harvard is in for years of trouble independently of the financial situation.

  • Joe

    Larry Summers bankrupted America, he bankrupted Harvard too.

  • Peter

    With City Councilors like Marjorie Decker, who has proposed that Cambridge reduce Harvard's in lieu of tax payments so that 9 janitorial jobs at Harvard can be saved, it would appear that Pres. Faust has already found a sugar daddy.

  • Jeff

    It's not really bitterness, it's just that, when the Emperor has no clothes, people aren't inclined to believe you when you point it out, especially when the Emperor looks so good in Crimson.

  • c

    It's pretty clear that many of the key people who led to the current crisis had Harvard (and other Ivy League) backgrounds. Hopefully our society will get over the fascination with institutional brands and realize that reputational inertia and pedigree cannot be a substitute for performance. Many of these supposedly top notch professionals have proven themselves to be as incompetent as anyone else but the tailwind that Ivy educations provided put them in positions of responsibility for which they were unprepared, the result is before us.

  • Bill

    Why didn't Harvard's auditors note the risk? How come they didn't detect Madoff?Bill Drissel

  • Neeraj

    This author seems lazy. The "common touch" thing Faust does (taking handshakes at the freshmen ice cream social) is an annual tradition that every President does every year — the author could have learned that by speaking to anyone other than a single employee present at the time. The author acknowledges he couldn't get anyone to speak badly of the current president on record, but then didn't critically examine the positive comments. She is a total non-entity on campus — they should have hired Kagan. As for the author's thoughtless knee jerk animosity towards Summers, it has already been said many many times that if you simply google Summers' speech about reasons for the lack of tenured women in sciences then you'll see his comments in context have been mischaracterized by lazy reporters such as this author. In addition, the below is a fun article about Summers. He wasn't such a bad guy, and some people who were on campus at the same time he was remember him fondly.http://www

  • mike

    Beware of anyone who begins a sentence with the word "might:"
    Might Harvard have overplayed its hand in its spending ambitions not simply because it was rich and thought it could afford to but because being the anointed holy grail of the aspirational elite means it couldn’t afford not to?
    …and then doesn't know how to end it.
    Christine, I take it, is a graduate of the Great University.

  • Dwight

    Since most major universities depend on endowment funds, and all investments were hurt by the recent recession, why should the quality of Harvard decline any further than any other comparable institution? Why should the relative ranking of universities change at all as the sinking tide lowers all boats?

    The Harvard I knew as an undergraduate in the seventies was anything but an institution cultivating a 'herd mentality,' as some posters believe. I have been associated with five other universities since then, and I never enjoyed greater freedom of thought than at Harvard.