The head of the Connecticut university’s chapter of the American Association of University Professors calls it “demoralizing.”
He is referring to an increase in the federal tax on university endowments income beginning next year that could potentially result in layoffs at Yale University, university officials said in a memo to faculty, staff and students.
The university is expected to pay $300 million per year due to the increase in the federal tax, the university administration said in a recent memo. Yale’s endowment is currently taxed at an annual rate of 1.4%. Beginning on July 1, 2026, that tax will increase to 8%, the university explained in its memo.
“Nearly two-thirds of the university’s expenses relate to compensation and benefits,” university administration said in a memo. “Unfortunately, this means several units may need to meet their budget targets by reducing their workforce,”
While university administration stated that most reductions can be accomplished by eliminating open positions and through regular turnover and retirement incentives, they note that “in some units, even after these reductions layoffs may be necessary.”
Daniel Martinez HoSang, the president of the Yale chapter of the American Association of University Professors expressed concerns about potential layoffs to faculty, lecturers and said cuts have already affected admissions and graduate research programs. He further inquired why the university like some other institutions has not increased its endowment spending to mitigate further cuts.
“You are seeing some other universities increasing their endowment spending,” he said. “You have seen foundations doing it recognizing these difficult times and Yale refuses to even revisit the policy. I think some people perceive it is choosing a policy around protecting the endowment over protecting people and that is demoralizing.”
The Ivy league university recently announced this past fall that its endowment’s value increased to $44.1 billion, with U.S. News & World Report reporting that it has the second highest endowment in the country.
Yale University did not answer questions from the Courant concerning its endowment and whether it could adjust its endowment spending.
University officials have stated in memos that about “one third of the annual budget comes from Yale’s endowment, a collection of thousands of funds, most of which have been designated to support specific aspects of the university’s core mission.
“Approximately 75% of the endowment is restricted,” Yale administration said in its memos. “The university is legally required to use these gifts only for their stated purposes.”
The administration said that each year the university aims to “spend 5.25% of the endowment’s value, the amount projected to be sustainable given reasonable long-term growth expectations in the endowment’s value, after adjusting for inflation.”
HoSang said with a $44 billion growth in its endowment it is hard for people to come to terms with the possibility of layoffs, explaining that the university could modestly adjust its spending to mitigate the issue.
Cambridge Associates, a global investment firm, reported this past October that a survey of 104 endowments and foundations found that most “institutions are adhering to their endowment spending policies with 80% following policy in 2025 and 81% expected to do so in 2026.
Further, the survey found that “15% in 2025 and 14% of endowments are spending beyond policy, primarily due to federal funding cuts and operating stress.”
“Colleges, universities and foundations are drawing more from their endowments to balance budgets, fund capital projects and offset reductions in government support,” the Cambridge Associates report found.
In a previous article on endowment spending Cambridge Associates stated that “one-time slight increases in spending will not have significant long-term implications, especially for an institution that is not reliant on the endowment.
“Higher multi-year spending can erode an endowment’s purchasing power and leave large budget gaps in the future,” Cambridge Associates, a global investment firm stated further.
Changes already in place
Earlier this year Yale already began making changes in preparation for the endowment tax including enacting a 90-day hiring pause, “reducing non-salary expenses for fiscal year 2026 by 5%, deferring building projects and announcing a one-time retirement incentive for managerial and professional and command staff,” according to the university’s December memo.
But the administration is clear that the changes “cannot make up for the significant long-term reduction in funds that support students, faculty and staff.
“Based on the planning exercises conducted so far, it is clear that budget reductions will need to continue across the university and that some areas will feel more financial strain than others,” the administration said in its memo.
Yale did not answer further questions from the Courant about how the potential cuts would impact faculty, students or course offerings and asked the Courant to refer directly to the memo.
Expected changes
University administration outlined in their memo that some schools and units have already announced “budget-reduction measures including changes to service offerings, building project schedules, travel and entertainment and some undergraduate student summer support.
“In some cases, faculty searches have been delayed and staff hiring deferred,” the memo stated. “As units implement their plans our community can expect to see additional organizational, service and program changes.”
HoSang said for lecturers, and non tenured faculty there is a lot of nervousness about whether their position may be eliminated.
He added that very little information about the budget is shared.
“We basically find out about budget decisions like the rest of the public does and that includes both announcements and the underlying budget information,” he said.
“We have so little voice in even offering ideas and feedback. It is concerning to everyone that the possibility of layoffs has been put on the table by the administration and even the other modes including early retirement and having unfilled positions go vacant means more work for the existing staff which especially already feels taxed.”
