Cornell, Brown Look to Alternative Funding After Trump Threats

US colleges facing the threat of federal funding cuts under President Donald Trump’s administration are tapping short-term borrowing to preserve cash.

Cornell University is set to roughly triple the size of its taxable commercial paper program to $1 billion, according to Moody’s Ratings. The school plans to replace an existing $1 billion tax-exempt program with commercial paper notes. Brown University and the University of Southern California are exploring similar strategies.

Commercial paper is a short-term financing tool widely used by companies, governments and colleges to fund infrastructure and other projects. Institutions often issue the notes as bridge financing before replacing them with long-term debt.

“If I were a treasurer, I would conserve my cash on hand,” said Sally Bednar, a consultant to colleges and former higher-education banker at Wells Fargo & Co. “I wouldn’t be spending it on projects, I would borrow in the capital markets as soon as possible.”

Trump has escalated scrutiny of colleagues accused of mishandling allegations of antisemitism on campuses, threatening to revoke billions of dollars in federal funding. The administration has frozen funding for Columbia and Princeton universities, while Harvard faces potential losses of as much as $9 billion in grants and contracts unless it complies with a list of federal demands. 

By tapping commercial paper or selling longer-term debt, colleges can keep their cash stockpiles to help weather the uncertainty.

“There is increasing risk of margin compression driven by potential sector-wide decreases to research and healthcare funding as a result of developing federal policies,” said the Moody’s analysts in a report evaluating Cornell. The school has an Aa1 rating from the company, the second-highest available. 

Cornell is among a number of schools that have implemented hiring freezes amid the financial uncertainty due to cuts related to federal funding. A spokesperson for Cornell declined to comment. 

Commercial paper is not uncommon and many sophisticated muni borrowers utilize the programs. For example, the Dallas Fort Worth International Airport used extendable commercial paper to help finance its $8.6 billion capital program.

Schools are looking to preserve their liquidity and some institutions turn to commercial paper for shorter-term capital funding needs, Bednar said. Colleges have also rushed to sell traditional debt to fund campus projects amid concerns they could lose access to tax-exempt market as part of the GOP’s push to extend tax cuts.

If a college was planning to fund a project with cash, it’s likely now looking to conserve that and use commercial paper instead, said Lisa Washburn, a managing director at Municipal Market Analytics. “In periods of uncertainty, cash is king.”

Brown sold $200 million in tax-exempt commercial paper notes in February for projects, including a new laboratory that it’s building.

USC, which just sold $600 million of muni debt, is also expecting to establish a taxable commercial paper program of $250 million during the 2025 fiscal year, according to its bond documents. The program will be used as needed for general corporate purposes, the documents say. 

A spokesperson for USC didn’t have an immediate comment. 

More schools are likely to follow suit, Washburn said. She expects institutions will tap the taxable bond market or commercial paper because of the flexibility of funds. Princeton said it’s considering selling $320 million of taxable debt later this month. 

“It’s a strategic and very fiscally astute decision to shore up any liquidity that they have due to the extreme uncertainty that’s going on,” she said. “Money is always somewhat fungible.”

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