Universities that rely on federal grants and funding have been hit hard by cuts to federal programs. Research funding for the University of Pennsylvania has reportedly been frozen, federal grants for Columbia University are being withheld and the National Institutes of Health — by far the largest federal funder of university research — announced last month that it would cut the rate it pays for university facility costs on the scale of billions.

Some might say that these cuts are justifiable considering that universities often have large endowments and the schools can draw from those funds instead. However, those endowments are complicated, and as Elizabeth Popp Berman, a professor of organizational studies at the University of Michigan, argues, they can’t make up the difference from lost federal funding.

Berman joined “Marketplace” host Kai Ryssdal to talk about why that is and what losing this funding means for universities. The following is an edited transcript of their conversation.

Kai Ryssdal: So, uh. I guess we start at the very beginning here, which is endowments. What are they? Because contrary to popular opinion, they are not just a giant pool of money.

Elizabeth Popp Berman: Right. The first thing to know about endowments is that they are actually tens of thousands of little specific funds. So when a donor gives money to the university, they give it with some specific intent in mind. So maybe it’s for a particular kind of cancer research, or maybe it is for a particular scholarship. Then the university agrees to hold that money and is allowed to spend the interest on it effectively on those specific things.

Ryssdal: So a dollar is not a dollar is not a dollar. Right? They can’t, you know, sort of replace that with something else. They just, they gotta do that.

Berman: Exactly, and that’s oversimplifying a little, but that’s what most of the endowment actually is.

Ryssdal: OK, so to the matter at hand, federal funding gets cut — as is happening now, and chances are it’s gonna happen more in the future — the point of this post is that university endowments cannot make up the difference. And the question then has to be why?

Berman: Yeah, I think there’s a couple of reasons really. First, they’re just not that large relative to the amount of money that the government contributes to universities. You know, most recently we’ve seen Columbia had $400 million immediately pulled from it. But the [Trump] administration said they [Columbia] had $5 billion in contracts outstanding that could be pulled, right? So even though Columbia’s got a $15 billion endowment, much of which they legally can’t spend anyway, it can’t cover something like that on more than a one-time basis.

Ryssdal: The other thing you point out in this post is that, and I think you cite the University of Michigan, your university specifically, it’s got like a $19-ish billion endowment, but it has tens of thousands of students, with huge obligations, and so, on a per-student basis, you can’t get there from here.

Berman: Yeah. And I think that’s another thing too, is that it’s easy to forget just how large these institutions actually are. So the University of Michigan has an annual budget of something around $13 billion, $14 billion. So again, you know, if you sort of translate this into the kinds of terms of kind of an ordinary family, right, if you make $100,000 and you have about that much in savings, it’s not like you can really just retire on that and support yourself.

Ryssdal: We’ve all heard of, and I actually have friends in academia who pointed out, that Ph.D. enrollments are being put on hold if not completely rolled back. What are you seeing in Ann Arbor? And the point to make here clearly is that you don’t speak for the university, but what’s your experience?

Berman: Sure. I mean, I think what you see right now is that research programs are being cut. Lines of work that I think most people in the public would be generally very supportive of — you know, we have a huge medical center that does tons of of cancer research, for example — those programs are just kind of grinding to a halt, and so the university’s doing a lot to try to backstop that in the short run. But right now they’ve said they’re gonna be able to backstop about maybe six months to kind of give people some time to transition, but there’s no long-term solution to federal funds going away.

Ryssdal: With the acknowledgement here that you are an academic and not a tax policy specialist, there is on the table, certainly in Washington, Vice President JD Vance has said he wants to tax university endowments at something like 35%, and they are now, if not tax-free, then much lower levels of taxation. What do you think of that?

Berman: I mean, I think it’s complicated because I do think that it’s a problem for the sector that there’s so much inequality between very wealthy institutions with large endowments, and the majority, you know, a large majority of colleges and universities that have almost no endowment to speak of. So I might support an endowment tax that was going to help fund underfunded parts of higher education. But I think right now what we’re looking at really is a potential endowment tax that is essentially going to fund tax cuts for the well-off.

Ryssdal: You mentioned inequality there. It should be pointed out that there are like 20 institutions of higher learning in this country with, you know, $20 billion endowments, and they get all the attention, but most schools have way less, if any, right? And I guess the point is these endowments do contribute to inequality.

Berman: Yeah. And I think it’s really important to remember is that, you know, when we read the news, we’re really reading about the same handful of five or 10 or 20 institutions that do have these large endowments, but most colleges are not in this position. Your regular regional university down the street that enrolls a lot of students in your community does not have an endowment that’s contributing in any significant way to its bottom line. And rising endowments have kind of contributed to that inequality, but, you know, as part of a larger story.

Ryssdal: All right, so look, here comes the “put up or shut up” question. If federal funding is really going away, which certainly seems to be the case, and endowments can’t make up the difference, as you lay out in this post, now what do we do?

Berman: I think if federal funds truly go away, universities will still exist, but they will just be smaller. They will not be globally competitive, and a lot of really important work that has been getting done will no longer happen.