As the Trump administration suspends billions of dollars in funding to elite universities, some of them are turning to the bond market to raise money with taxable bond sales.
One of the administration's most prominent threats is to Harvard University, which faces the loss of almost $9 billion from the administration under the pretext of investigating antisemitism.
Harvard priced $750 million of taxable corporate bonds on Wednesday. Fellow Ivy League member Princeton University, which has seen dozens of federal grants frozen,
Tapping the bond market helps universities maintain liquidity and "keep a steady hand on their budget," said Patrick Luby, senior municipal strategist at CreditSights.
The market has seen higher volume from the higher education sector this year. Triple-A rated Harvard and Princeton show that even financially sound schools may need the money enough to brave a historically volatile market.
Higher education issuers priced $11.6 billion of bonds in the first quarter of this year — a $3.7 billion increase over Quarter 1 of 2024, according to a report from Municipal Market Analytics.
Potential
Colleges and universities also issued $800 million of corporate CUSIPs in the first quarter. The Harvard and Princeton deals will add more than a billion dollars to that sum.
"This quarter's higher education borrowings are even more highly concentrated among the wealthiest/highest rated with ~90% of the debt issued by AAA or AA rated entities, compared with ~77% in 2024," the MMA report said.
Harvard's deal on Wednesday consisted of $750 million of unsecured general obligation taxable bonds. Goldman Sachs was the sole bookrunner, with Morgan Stanley as co-senior manager. The deal had nine co-managers, according to the investor presentation.
Princeton's bonds, which are set to price next week, will also be corporate CUSIPs. The $320 million of bonds will have a bullet maturity due in 2030. BofA Securities will be bookrunning manager with TD Securities as co-manager and the Yuba Group as financial advisor for the deal. Ballard Spahr is the deal's counsel.
These deals come in addition to sizable tax-exempt issuances. Harvard issued $434 million of revenue bonds in March through the Massachusetts Development Finance Agency. Princeton has plans for a $650 refunding deal in May, according to the offering statement for next week's deal.
Although Princeton announced its deal on the same day that the Trump administration announced the grant cuts, university spokesperson Jennifer Morrill said the school had been considering the bonds for some time.
"As with most of our debt, the planning for the upcoming bond sale began months ago to meet plans for a spring issue," Morrill said.
The offering statement for the Princeton bonds disclosed the suspended grants.
"It is unclear whether or not those suspensions will result in terminations," the statement said. "While the financial impact on the University resulting from the totality of potential developments at the federal level cannot be quantified at this time, any such developments could, directly or indirectly, have a significant adverse effect on the current and future financial profile and operating performance of the University."
Higher education institutions have endured a
The administration is fighting a court battle to cut reimbursements for research expenses, federally investigating 60 schools for supposed civil rights violations, and Congress is considering raising the tax on university endowments. All of these policies are concentrated on elite institutions which have avoided previous stresses on the higher education sector.
This week, Trump's Commerce Department touted $4 million of grants it
Other threats to universities, the MMA report noted, include efforts to shrink or eliminate the Department of Education, immigration policy that hurts international enrollment, the impacts of tariffs on operational costs and the potential that the administration's policies will damage the broader economy.
Many of these risks have not yet impacted schools' operations, but the schools are already reacting, through hiring freezes, curtailing research and rescinding offers to Ph.D. candidates.
Higher education institutions' preparations have been so dramatic that Moody's
Universities have plans for responding to budget stressors, especially elite schools like Harvard and Princeton, said Moody's analyst Susan Shaffer. Those plans are usually for investment market downturns rather than direct attacks from the federal government, but they can adapt their plans to the current circumstances.
"They have a lot of options of things to do and ways to make sure that they have the resources on hand to manage through any short-term pain," Shaffer said. "Going to the market and taking out some flexible debt, taxable debt that you can use for a variety of different purposes just gives you more options."
These factors have not affected Harvard and Princeton's ratings, Shaffer said. And although the federal government's actions have made headlines, Cheng doesn't expect them to have much impact on investors' perspectives.
"Investors are very smart. And they know certain things are manageable, certain things aren't," Cheng said. "The sector has been dealing with enrollment decline for many years. [To investors] that's more important, perhaps, than the administration's actions."
Luby said that the schools involved and the shorter maturities on the bonds will mitigate investor concerns.
"I think Harvard is going to be in solid shape and able to honor those promises," Luby said. "Other schools, not so sure."
