Princeton University Faces Budget Cuts Amid Declining Investment Returns
Princeton University is tightening its budget due to lower investment returns from its endowment and changes in federal policies, including a new tax on endowment income. University President Christopher Eisgruber shared that adjustments are necessary to manage rising costs and support the essential programs in teaching and research.
Last year, Princeton asked various departments to reduce their budgets by 5% to 7%. Eisgruber indicated that the university might need to implement further cuts in the coming years. These planned reductions follow a decade of significant growth at Princeton, which began with a strategic plan in 2016 that expanded enrollment and facilities.
In the past few years, Princeton has opened new buildings, including an art museum, driven by a nearly 12% increase in student enrollment, rising to over 9,100 students. This growth was made possible by the university’s sizable endowment, reported to be the fifth largest among U.S. colleges, valued at $35.7 billion at the end of the last fiscal year.
Interestingly, the contribution of the endowment to Princeton’s operations has increased over the years. In 1985, it made up about 15% of the operating revenue. By 2016, that figure rose to 55%, and it climbed to 65% recently. Eisgruber noted that while this dependency on endowment funds is often a blessing, it brings new challenges as recent returns slow, linked to shifts in the market rather than Princeton’s own investment strategies.
Currently, the university anticipates endowment returns of 8%, down from 10.2%. This adjustment could mean a drop in the endowment’s worth by $11.3 billion over the next decade, significantly impacting annual payouts.
As Princeton faces these financial adjustments, it also must contend with an increase in the endowment tax from recent federal legislation. Estimates suggest that Princeton’s endowment tax for fiscal 2026 could be around $217.4 million, potentially rising to nearly $287 million by 2030.
The landscape of higher education finance is shifting. Experts point out that universities across the country may need to rethink their reliance on endowment growth, especially as market conditions fluctuate.
Despite these challenges, Eisgruber maintains that Princeton has strong financial foundations and will need to make thoughtful choices to maintain its mission. As the university navigates these economic hurdles, it emphasizes the importance of community engagement, planning to gather input through various forums.
This situation at Princeton mirrors broader trends in higher education, where many institutions are reviewing their financial strategies in light of uncertain economic conditions.
