Only months after capping its second-most successful fundraising campaign in fiscal year 2024, Northwestern turned to the debt market in March, borrowing an additional $500 million in taxable fixed rate bonds.
Weeks later, as the University now stares down a $790 million federal funding freeze, the transaction could prove even more timely.
Other than NU, a growing number of universities nationwide have issued bonds to pony up funds in response to the Trump administration’s recent attacks on higher education. Facing the administration’s wave of federal funding freezes, universities are now searching for extra sources of income, experts say.
“I believe it is not a coincidence that universities are looking to raise financing given the uncertain status of federal government funding,” said John Longo, a finance professor at Rutgers University. “The recent drop in intermediate to long-term interest rates is also likely a factor that favors issuance at this time.”
According to a public offering document from NU, the latest sale of bonds “are expected to be used by the University for general corporate purposes, including but not limited to financing certain capital projects.”
A University spokesperson did not respond to an inquiry about whether or not those “general corporate” purposes include efforts to finance losses incurred by NU’s funding freeze.
The public document notably includes a specific section called “certain investments considerations,” a list of recommended items for investors to evaluate before buying any bonds. Among those included “potential changes in federal policies, regulations and laws” as well as uncertainties in the University’s grants and contracts in the coming months.
The bond sales added to NU’s debt portfolio value of $2.4 billion, as listed in its fiscal year 2024 report. Last month, the S&P Global Ratings assigned an “AA+” long-term rating to the bonds that are set to mature in 2035.
Historically, bond sales have also been considered a routine activity for universities to raise capital, but with more liquidity. The sale of them now could provide an immediate solution given current federal challenges, Longo said.
“A bond sale results in immediate cash upfront for a university. Of course, the funds have to eventually be paid back with interest,” Longo said. “The cash can help fund university operations, capital investments or be invested at possibly higher rates of return.”
Since President Donald Trump’s return to the White House in January, his administration has primarily lobbed two major fiscal threats against universities — the loss of federal research grants and the prospect of an increased endowment tax, according to Alex Butler, a finance professor at Rice University.
NU’s current endowment is valued around $14.3 billion, one of the highest among universities in the country. To resolve a budget deficit in 2018, NU drew over $100 million from its endowment in the following two years.
Days after the University’s funding freeze was first reported, NU Board of Trustees Chair Peter Barris emphasized at this month’s Faculty Senate meeting that tapping into the endowment would be a last resort.
“It’s largely impossible for universities to just spend more of their endowments because of restrictions, contractual provisions and donor agreements,” Butler said.
NU last issued over $300 million in taxable fixed rate bonds in 2020 during the middle of the COVID-19 pandemic. That year, the University reported a loss of at least $25 million in revenue from room and board and student fees.
The sales of bonds are largely circumstantial in any industry, according to Pritzker Prof. Allan Horwich, who specializes in securities litigation. Both the seller and buyer must carefully weigh the consequences of going through with any transactions, he added.
“It’s always a question of what did they know at the time of the sale of the securities,” Horwich said.
This month, Harvard University also drew up an additional $750 million in bonds in the face of potential funding threats from the Trump administration. Princeton University is also issuing $320 million in bonds.
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