These days in the US you cannot turn on the TV or radio without hearing some company is laying off workers, or worse, going bankrupt. But when the President of the richest university in America declares in this morning’s newspaper that Harvard must freeze budget and cut expenses, you know things are becoming really tough.

Harvard University ( http://vpf-web.harvard.edu/annualfinancial/ ) has an endowment of 37 billion dollars, annual expense of 3 Billion dollars.   Conservatively, the university withdraws 4% from the endowment per year, i.e. endowment contributed about 1/3 to ½ of annual budget with the rest coming from current donations, tuitions, research contracts and grants. Incidentally this breakdown of income and expense is typical of American research universities.  

The endowment of universities are expected to drop on the average by 30% as reported by the Higher Education Council due to the Wall Street crisis. Thus endowment income will drop by 4% of 30% of 37 billion dollar = roughly 400 million dollars. Current donation will probably also drop since everyone is feeling poorer. Thus, this is no minor matter for a university!