The list of Harvard University’s disaffected donors has added another billionaire: Len Blavatnik. 

His family foundation has given at least $270 million to Harvard, but it’s pausing donations in the wake of university President Claudine Gay’s widely derided congressional testimony on antisemitism, according to a person with direct knowledge of the matter. 

Since Hamas’ Oct. 7 attack on Israel, alumni from billionaires to recent graduates have said they’re halting gifts until the school does more to address antisemitism. The tumult is tarnishing Harvard’s brand and damaging its carefully cultivated alumni network. That in turn is threatening to dent the finances of the richest and oldest U.S. university at a time when its investment returns are lagging and Congress is considering ways to cut federal support. 

“The problem Harvard has is that all their sources of revenue are strained,” said David Bergeron, a retired deputy assistant secretary in the U.S. Education Department. “Their ability to raise money is clearly strained and their ability to leverage federal programs is potentially at risk.”

Blavatnik, a Harvard Business School alumnus, and his wife Emily are holding back donations until the university tackles what they see as rampant antisemitism on campus, said the person familiar with their thinking, who asked not to be named because the discussions are private. 

They also expect antisemitic acts to be treated no differently from affronts to other communities. The Blavatnik foundation’s contributions have included about $200 million for Harvard’s medical school. 

The donor rebellion isn’t Harvard’s only problem. Gay also faces an intensifying spotlight on plagiarism allegations against her. Last week, the university’s governing council said it had examined her academic writings after becoming aware of the accusations in late October. The board said it had found “a few instances of inadequate citation” but no violation of school standards for research misconduct. 

This week, however, a U.S. House of Representatives committee opened an inquiry into Harvard’s handling of the allegations, fueling widespread media scrutiny. The committee asked for a response from the school by Dec. 29. 

On the financial side, meanwhile, Harvard faces rising costs, including for salaries, maintenance and financial aid — a cornerstone of its push to diversify the student body. Operating expenses last year totaled $5.9 billion, with salaries, wages and benefits for the university’s 20,000 professors and staff accounting for more than half the budget. Harvard’s endowment stood at $50.7 billion as of June.

During its latest fiscal year, the school got 37% of its revenue from endowment distributions, its largest source of income. Another 8% came from current-use gifts. With the recent turmoil, however, more alumni and big donors are closing their checkbooks and refusing to make fundraising calls. 

Harvard declined to comment on its finances. 

Financial aid in danger

Even if the Cambridge, Massachusetts-based institution suffers a significant drop in donations this year, it has liquidity to make up for a shortfall, said Matthew Wynter, an assistant professor of finance at Stony Brook University. That’s a contrast with 2008 and 2009, when Harvard and other universities faced a squeeze because of the market crash. Harvard currently holds short-term investments of $1.4 billion, as well as a $1.5 billion line of credit. 

But if donations deteriorate enough, the downturn would start to endanger some of the school’s key goals. For example, Harvard has been spending more on financial aid for undergraduates, including $246 million in 2023. About 55% of students are estimated to receive need-based grants during the current school year, Harvard said in March. That enables families receiving support to pay an average of $13,000 annually instead of the list price of at least $83,000. 

Attendance is free for students from families with annual incomes below $85,000, up from $75,000 a year before. That covers almost a quarter of undergraduates. 

“That’s a legitimate concern that going forward, Harvard would not be able to fully support its financial aid program for undergrads, which is how they’re trying to maintain a diverse and accessible student body,” Wynter said. “For Harvard to continue offering a generous financial aid program and retain elite university talent and personnel, they need fundraising and their endowment.”

To the extent that donors pull back, Harvard is “going to have to cut costs somewhere, increase spending from the endowment or raise more revenue by essentially admitting more full-pay students,” said Jonathon Jacobson, a Harvard Business School alumnus and former portfolio manager for the endowment. 

Harvard isn’t the only elite school under pressure because of campus controversies around antisemitism. Gay and her counterparts at the Massachusetts Institute of Technology and the University of Pennsylvania drew widespread criticism for their testimony before Congress on Dec. 5, when they gave narrow legal responses over whether calling for the genocide of Jews is against school policy. 

Penn President Liz Magill stepped down days later. A group of Republicans in the Pennsylvania state legislature blocked a payment of more than $30 million to the university’s veterinary school.

Congressional pressure

Another source of pressure could come from the U.S. government. Even though Harvard is a private university, it depends on U.S. funding, especially for science. Federally sponsored research comprised 11% of its operating revenues during the fiscal year that ended in June. 

“Congress is already thinking about taking money from those institutions like Harvard anyway,” said Bergeron, the former Education Department official. “It can’t help them to be in the middle of another controversy.”

Harvard, Penn and MIT are already among the schools being probed by the Education Department for discrimination under the 1965 Civil Rights Act. Investigators have opened at least 20 inquiries into antisemitism and Islamophobia on college campuses since the Oct. 7 attacks and Israel’s ensuing response in Gaza, which according to the Hamas-run health ministry has killed more than 19,000. 

Gay “needs in my opinion to make some significant changes and do some significant disciplining of people,” said Harris “Shrub” Kempner, who has been writing a check to Harvard every year since he graduated in 1961. “Is she talking a good game or is she actually going to do something, especially when students or faculty members interrupt other people’s education.”

Kempner, an investment manager in Galveston, Texas, said he isn’t quite ready to stop donating and will give Gay a year to make changes. But if he’s not satisfied with the moves she makes, he plans to stop giving and alter his will to cut out his alma mater.

He’s not the only one who will be watching closely. The House Education and the Workforce Committee started an investigation of Harvard, MIT and Penn after this month’s hearing. Last week, Democrats joined Republicans in advancing a bill that would remove some of the wealthiest schools from the federal student loan system, a move that lawmakers said would help pay for an expansion of grants for low-income students. 

The change would apply to a few dozen of the richest colleges that are subject to a tax on their endowments, a levy that Congress passed in 2017. 

Whether Congress would actually approve such a measure remains highly uncertain. At Harvard, the biggest impact from that legislation would be on graduate school loans, which accounted for more than 90% of the $105 million in student loans disbursed last year at the university. Undergraduates typically pay their own way or receive significant aid. 

Endowment returns fall short

Harvard, of course, has its endowment to fall back on. But the fund’s value fell by $2.5 billion over the last two years. It has posted the second-lowest investment returns in the Ivy League over the last decade. 

Four permanent or interim chiefs led Harvard’s endowment during that period, including N.P. “Narv” Narvekar, who took the reins in December 2016. When the performance lagged in 2021, Narvekar said returns would have been better if the fund had taken on more risk. 

Fundraising efforts are usually in full swing in December, as donors make year-end gifts and volunteers contact classmates for donations. This year, however, the turmoil over Gay and the Israel-Hamas war are dominating discussions among many alumni. 

The fiscal year closes in June 2024 and fundraising numbers won’t be released until the fall. But for now, it’s clear that many alumni are reconsidering their donations. 

Diploma down

Hours after the board announced Gay would remain as president, Craig Unger took down his Harvard diploma, which had been prominently displayed on video calls, from his home office in St. Petersburg, Florida. Then the 1991 graduate posted a picture of the removed diploma on social media. 

“The testimony showed the depth of the moral bankruptcy that has affected the university,” said Unger, whose grandparents survived the Holocaust but lost all their siblings and parents. He grew up in an apartment under his grandparents’ unit in Canarsie, Brooklyn, and said he credited Harvard with changing his life.

Alumni like Unger may gravitate back to Harvard after a change in direction. The question is when. 

Richard Levin, who led Yale as president for 20 years, said the turmoil on college campuses reminds him of the 1960s. 

While the long-term effects are “really hard to guess” at this stage, his experience at Yale offers some insight. Some prominent alumni business leaders who became disaffected by Vietnam War-era tumult eventually returned as Yale donors, he said. 

But it took them 25 years.

–With assistance from Amanda Gordon, Devon Pendleton and Shelby Knowles Nikolaides.

Original: Fortune | FORTUNE: Len Blavatnik joins Harvard’s donor revolt