Dear Yale Faculty and Staff Colleagues,
We last communicated with you about Yale’s financial status in December 2025, when we shared plans to adjust to new challenges, including the increased federal tax on Yale’s investment income and changes to federal research funding. Though these headwinds persist, we write today with updates, including some good news, that will inform our approach to stewarding Yale’s resources over the coming years.
Financial planning to date
As we shared in earlier messages, the increase in the federal endowment tax from 1.4% to 8% will significantly impact Yale’s budget. We estimate that the tax, which took effect July 1, 2026, will cost Yale approximately $350 million annually, and that cost will grow over time. These dollars would have otherwise supported students, faculty, staff, and local partnerships. Other federal actions, including both implemented and proposed changes to federally funded research, will further affect university resources.
Last fiscal year, we began planning for these new financial constraints and uncertainties. We implemented several university-wide measures, including a ninety-day hiring pause, retirement incentives, and reductions in non-salary expenses. To complement these actions, deans and directors across campus developed three-year plans to permanently meet the spending reductions that are needed to pay the ongoing tax. This multi-year approach has given each school and unit the flexibility to reach revised budget targets over time, recognizing that some spending commitments cannot end abruptly.
Fiscal Year 2026 financial results
As a result of these actions and ongoing efforts to meet revised budget targets, the university generated a positive operating surplus for the year ending June 30, 2026—the last full fiscal year before the change in tax rate took effect. This surplus is not held centrally; instead, it reflects savings distributed across thousands of accounts in schools, units, departments, and programs. These savings will help schools and units offset the cost of the endowment tax and continue making progress toward their budget reduction targets.
We are deeply grateful to campus leaders for the diligence and difficult decision making that made these results possible, and to our faculty and staff colleagues whose hard work and dedication have sustained the university’s mission during a period of significant uncertainty for Yale and higher education.
Endowment return
In the broader context of this financial climate, we are pleased to share welcome news. For the year ending June 30, 2026, the Yale Endowment generated a 26.3% return—substantially higher than the 8.25% target return we use to develop the university’s annual budget. These resources are possible thanks to generations of donors who chose to invest in Yale’s future, and to the hard work of Yale Investments Office colleagues, whose long-term endowment stewardship helps ensure that Yale’s mission endures.
Of course, the university will benefit less from this return than it did in previous years, as a portion will be subject to the higher endowment tax rate. Additionally, approximately three-quarters of endowment funds are legally restricted for specific purposes. Nevertheless, these results are encouraging and provide additional capacity to advance our mission in the coming months and years.
Smoothing the return
We will continue to follow the “smoothing rule,” a key component of Yale’s endowment spending policy, to incrementally incorporate the return into the operating budget over five years, starting with the Fiscal Year 2028 (FY28) budget that begins on July 1, 2027. This longstanding approach to spread returns over a multi-year period protects the university’s budget from market volatility, prevents over- or underspending over time, and ensures Yale’s mission can continue uninterrupted should market conditions yield lower-than-expected returns in the years ahead.
Last year’s endowment return is a recent development, and university leaders are still considering how to deploy these resources. What is clear, however, is that schools and units will have additional funds to meet their budget targets or, where targets have already been met, to apply toward their strategic goals.
At the institutional level, we will have the opportunity to invest more in our people and in priorities that enable outstanding research, scholarship, and education—including efforts to increase access and affordability, enhance the student experience, support faculty and staff, bolster campus infrastructure, and advance community partnerships. As we pursue these goals, we remain committed to being careful stewards of the resources that must serve Yale now and in the future.
Factoring the endowment return into the FY28 budget and beyond
To prepare Yale’s FY28 budget, the first budget year to incorporate recent endowment results, we will follow the thoughtful, well-established budget planning process used each year. This fall, school and unit leaders will develop budget plans that reflect increased spending parameters and determine how to use new funds based on their strategic goals and their communities’ input.
In the spring, Yale’s Budget Advisory Group—comprising faculty and professionals from across the university—will review these plans and offer strategic input. At the end of this process, the budget will be submitted to the president and board of trustees for approval.
Read more about the endowment and budget in these FAQs.
Areas for university investment
As schools and units participate in budget planning to identify areas for investment, we will also pursue strategic investments at the institutional level. This work will be guided by our commitment to Yale’s exceptional students, faculty, and staff, and by the university-wide and academic priorities that will shape Yale’s future.
We are pleased to share initial thoughts on areas of the university we expect to strengthen. As plans are further developed, you will receive updates from us and other campus leaders.
Improving access and affordability
To advance knowledge and cultivate education, we will continue to ensure students can pursue their learning without financial barriers. Last year, we furthered this priority by expanding Yale College’s financial aid program. Now, roughly 80% of U.S. households with schoolchildren qualify for free tuition, and nearly half are eligible to attend Yale College at no cost.
We have also made important progress in supporting our graduate and professional students. Programs in Yale Divinity School, David Geffen School of Drama at Yale, the Yale Jackson School of Global Affairs, and the Yale School of Music are tuition-free, and we have launched significant financial aid, scholarship, and fellowship opportunities in other schools.
While we are proud of these efforts, we are committed to doing more. This year, we will continue to prioritize programs that promote accessibility and affordability across Yale’s schools. Our focus will remain on educating the most exceptional students from around the world, regardless of their ability to pay, and ensuring access to aid and opportunities that support their growth. We also intend to provide incremental support to the graduate school to incentivize innovative graduate programs and reduce reliance on declining federal training grant and fellowship support.
Supporting faculty and staff
Yale’s faculty and staff are the engine of our campus, and their contributions are essential to advancing each of our university priorities. These colleagues teach and mentor the next generation of leaders and ensure our operations run at the level of excellence a world-class university requires.
Within the next year, as we review university finances in the context of positive financial results, we will explore ways to recognize faculty and staff for their work. We will also strengthen learning and development programs, creating new opportunities for staff at all levels to grow professionally.
Enhancing our physical infrastructure
At Yale, we aim to develop our campus in ways that allow teaching, learning, discovery, and community to flourish—while honoring our commitment to advancing sustainability. Our faculty, students, and staff are exceptional, and we strive to ensure our facilities support their best work.
Looking ahead, we can now begin to more actively pursue two projects previously slowed due to financial constraints: new homes for the School of Engineering and Applied Science, which will benefit from modern facilities purpose-built for complex research, and the Yale School of Public Health, currently spread across multiple aging buildings. These projects represent investments in the next generation of leading researchers and public health experts. We are excited that they can now gain greater momentum.
We can also continue advancing the Dramatic Arts Building, part of our plans to nurture Yale’s historic strengths in the arts and humanities. This landmark facility for the theatrical arts will unite the David Geffen School of Drama and Yale Repertory Theatre, support both curricular and extracurricular undergraduate theater, dance, and performance, and serve as a gateway into Yale for our friends and neighbors.
Strengthening ties to New Haven
Yale’s partnership with New Haven is integral to a strong city and university. We are proud of the ways we have recently deepened commitments to our home city, including a pledge to increase the university’s voluntary contribution to more than $230 million through fiscal year 2033. In addition to these voluntary payments, we are also engaging in efforts to drive workforce development, reduce food insecurity, increase the local housing supply, fund local non-profit organizations, and more.
These new initiatives complement many existing programs that we will continue to prioritize. The Yale Teaching Fellowship, for example, fully funds graduate education for prospective teachers, who in exchange commit to working in New Haven public schools. Similarly, the Yale Pathways program—which recently welcomed its newest cohort of 600 public school students to campus—exposes young minds to experiential learning in STEM, the arts, and the humanities.
As both Yale and New Haven evolve and adapt to new challenges and opportunities, we look forward to strengthening our collaborations and advancing progress on joint goals that fortify our shared community.
Thank you
Over the coming months, we will continue to develop and explore the investments we have outlined today. We look forward to sharing progress in announcements throughout the academic year. In the meantime, we want to hear from you. Please consider writing to us with your comments, ideas, or suggestions.
As we steward Yale’s resources, we will be guided by our commitment to Yale’s mission and to the students, faculty, staff, and members of the greater community who bring this mission to life every day. It is our privilege to work alongside all of you in shaping Yale’s future. Together, we make this community one we are proud to belong to, and one that future generations will be proud to inherit.
Sincerely,
Scott Strobel
Provost
Henry Ford II Professor of Molecular Biophysics and Biochemistry
Geoff Chatas
Senior Vice President for Operations
Katrina Spencer
Vice President for Finance, Chief Financial Officer, and Treasurer