President Donald Trump’s funding freezes will force many struggling universities to seek financial solutions—but the bankruptcy process that typically provides a reprieve for distressed entities is unlikely to help academic institutions.
While bankruptcy offers legal protection and a path to recovery, universities are disincentivized from filing, as doing so would jeopardize their Title IV eligibility under the Higher Education Act, which is critical for student aid, and trigger cuts that lead to further financial strain.
Trump has targeted universities nationwide, recently threatening to cut $9 billion in grants from Harvard and blocking research grants at institutions like Princeton.
Public universities face additional challenges because, even if they seek bankruptcy protection as a last resort, convincing state governments to allow them to file under Chapter 9—a bankruptcy tool for municipalities—would be complex. And unlike private institutions, they can’t easily liquidate or sell buildings because their assets are deemed essential for public services.
With limited options available, universities may consider tuition increases, department overhauls, layoffs, debt restructuring, or liquidation, according to bankruptcy law academics and practitioners. But those measures could exacerbate ongoing struggles for institutions, marked by closures, rising costs, and the “enrollment cliff” caused by declining birth rates.
This article was originally published by Bloomberg Law.
Angélica Serrano Román 