How Harvard makes so much money — and why a major funding source could be at risk

• Harvard has the biggest endowment in the US, standing at just over $50 billion.
• A chunk of its revenue comes from gifts from alumni, parents, and friends of the school.
• The Education Department's inquiry into the school's legacy admissions process could shake up funding sources.

A major Supreme Court decision put a spotlight on the operations of prestigious colleges, how they admit students, and where their money comes from. And Harvard University recently emerged at the center of that debate.

At the end of June, the Supreme Court struck down affirmative action in college admissions, meaning that colleges can no longer consider race as factor when deciding to admit a student. The decision threw into question the role legacy admissions play at Ivy League schools, and how favored children of donors and alumni are in the admissions process. 

Harvard, in particular, is in the spotlight after the Education Department opened an inquiry into the school's admissions process following allegations from three groups — the Chica Project, the African Community Economic Development of New England, and the Greater Boston Latino Network — that claimed Harvard was favoring white and wealthy applications who were less qualified over applicants of color.

A Harvard spokesperson said in a statement that it is examining data on the way it admits students, and that "Harvard remains dedicated to opening doors to opportunity and to redoubling our efforts to encourage students from many different backgrounds to apply for admission." 

While some schools like Johns Hopkins and Amherst have ditched the preference for legacy students altogether, Harvard has so far declined to do so. A 2018 Harvard committee to study the role of diversity in education said getting rid of a legacy preference could diminish donations from alumni. Here's how important those donations are to one of the richest schools in the country and how it spends its billions.

Harvard has the biggest endowment in the country

Harvard has the biggest endowment in the US, totaling just over $50 billion as of fiscal year 2022. The endowment is made up of more than 14,000 funds, and according to the schools' fiscal year 2022 financial report, "endowment fund balances are classified and reported in accordance with donor specifications and state law."

While the university does not disclose where individual donations come from, there is a breakdown of broad categories that contribute to the endowment — and where the money goes. According to the school's 2022 financial report, philanthropy, which includes gifts from donors and alumni, accounted for 45% of total revenue. Research accounted for 17%, education costs — like tuition, room, and board — accounted for 21%, and other sources like publications accounted for 17% of the school's total revenue.

"In fiscal year 2022, Harvard received current use gifts from alumni, foundations, and others totaling $505 million, representing approximately 9% of operating revenues," the school said. "Support for the University comes from donations of all sizes; more than 75% of gifts in fiscal year 2022 averaged $155 per donor."

When it comes to actually spending all that money, Harvard said it uses endowment funds to "support nearly every aspect of University operations." It allocated 70% of the endowment to areas where donors specified they would like the funds to go, including scholarships, research, and construction. The remaining 30% of funds "are more flexible in nature and are critical in supporting structural operating expenses and transformative, strategic initiatives. In this way, the endowment bridges the gap between revenue that is brought in from tuition and research grants, and the critical costs associated with the University's teaching and research activities." 

As Harvard wrote on its website: "Even with endowment support, Harvard must fund nearly two-thirds of its operating expenses ($5.4 billion in fiscal year 2022) from other sources, such as federal and non-federal research grants, student tuition and fees, and gifts from alumni, parents, and friends."

That means that the school continues to rely heavily on donations from alumni and parents, and admitting children of alumni could ensure the money keeps flowing.