Dear Colleagues,
Each spring university leadership undertakes a comprehensive review of GW’s finances and plans for the upcoming fiscal year. This is a very important process, fulfilling our obligation to ensure we are prudently and strategically stewarding our resources to sustain our university’s financial foundation and secure our long-term stability. Unfortunately, this year, we face some difficult and immediate budget challenges.
The Challenges
As we have shared previously, including in a message in February, we are navigating external headwinds that all higher education institutions are facing. These include changes to federal research funding, the risk of the government targeting other university funding, the possibility of disruptions to student aid distribution or international student enrollment, and economic and political instabilities, to name a few. This environment underscores the need for GW to be ever more prudent in its planning.
At the same time, we also want to be transparent with you about GW’s specific financial issues. In recent years, our university’s expenses have grown at a faster rate than revenues, creating a significant and unsustainable gap that compounds each year. Continuing this trend, while we expect modest revenue growth, it will not meet our projected expenses across many areas and the need to provide more financial aid to students. This trajectory threatens to undermine the university's long-term financial stability.
For GW to build financial resilience, the Board of Trustees and university leadership have set a clear goal to achieve an operating margin of 1 percent in the next fiscal year, and 3 percent or higher within five years. GW’s margin targets, which are ambitious and achievable, will allow us to invest in the university’s future while maintaining financial strength and providing flexibility to deans and administrative leaders to manage their colleges and divisions.
Our Path Forward
Given these challenges and aspirations, it is crucial that we take steps now to help correct our course. Regrettably, some of the actions we need to take will have an impact on us all. However, we have strived to limit university-wide actions to the greatest extent possible and will utilize our academic and administrative leadership’s expertise to develop individualized plans for each school and unit.
The executive leadership team, which includes all vice presidents, deans, and vice provosts, met recently to discuss our path forward:
- Our fiscal 2026 budget will be based on reducing the fiscal 2025 total expense budget by 3 percent, which is essential to addressing a structural deficit. Over the coming weeks, each school and unit leader will prepare a budget that incorporates a recurring and sustainable 3 percent reduction from fiscal 2025 expense budgets. Our goal is a net 3 percent cumulative reduction across the university, which may not ultimately necessitate a 3 percent reduction in each unit. For example, some units may seek approval to contribute by sustainably increasing revenues.
- To allow deans and administrative leaders to directly manage decisions about new positions and vacancies in alignment with their budget strategy, we will sunset the position management review process on June 30.
- The merit increases that typically take effect will not take place in July. We will revisit this decision later in the year after our fall enrollment revenues come in, and we will keep you informed.
- We will continue to responsibly leverage distributions from the university endowment, understanding that many funds that comprise it are restricted in their use.
Please know that the decisions outlined in this note were not made lightly. They were carefully determined to be what is required to help GW meet this challenging moment. We appreciate your understanding and continued commitment to GW as we work through this. If you have additional questions, please consider reviewing these FAQs we have developed to provide more clarity and transparency about our finances and path forward. Working together as OneGW, we are confident we will strengthen our resilience and position our university for enduring success.
Sincerely,
Christopher Alan Bracey
Provost and Executive Vice President for Academic Affairs
Professor of Law
Bruno Fernandes
Executive Vice President, Chief Financial Officer, and Treasurer
Scott M. Mory
Senior Vice President and Chief of Staff
Fiscal 2026 Budget FAQs
- What led to GW’s current financial situation?
In recent years our expenses have been growing at a faster rate than our revenues, creating a significant and unsustainable gap. From fiscal 2023 to fiscal 2025, revenue growth has averaged 6.1 percent, whereas expenses have grown at a rate of 6.8 percent. While the percentage difference may appear modest, its cumulative effect has resulted in a structural deficit that continues to compound over time. Left unaddressed, this trajectory threatens to undermine the university's financial stability and long-term success.
- What are the external challenges impacting GW’s finances?
Recently, financial rating agencies downgraded their outlook on higher education to “negative,” reflecting the increasingly difficult operating environment shaped by potential federal policy changes.
Some risks include:
- Changes to federal research funding: Proposed caps on indirect costs and potential cuts to research funding could severely affect research support resources.
- Department of Education staffing reductions: Reduced staffing could delay federal student aid distribution, introducing financial strain for students and institutions.
- Potential federal actions: The current administration may choose at any point to target GW, which poses significant threats to our financial security. Further, the cost to respond to any actions would be significant.
- Immigration policy adjustments: Changes in this area could jeopardize international enrollment, reducing critical tuition revenue and campus diversity.
- Economic and political instabilities: Persistent inflation, trade restrictions, and volatile investment returns add further layers of complexity and uncertainty to our financial outlook.
- Potential taxes on endowments or revocation of tax-exempt status: Although there are proposals to expand excise taxes on university endowments, the chances of them impacting GW are remote. However unlikely, the revocation of tax-exempt status for GW or for higher education would have a massive impact on us as an urban university, and as a university trying to grow its philanthropic program.
- What are the internal challenges impacting GW’s finances?
With three quarters of fiscal 2025 now complete, it is clear our expenses continue to outpace revenue growth. Looking ahead, fiscal 2026 revenue is projected to grow by a modest 1.3 percent over the fiscal 2025 budget. However, we anticipate overall net tuition and fee revenue to remain flat next year. Although we expect to keep undergraduate enrollment levels constant and near the capacity limit, market pressures are increasing the need to provide greater financial aid, which reduces the net tuition per student. In addition, we anticipate only marginal growth in graduate tuition revenue. Other revenues are also expected to grow marginally, but this growth will be offset by mandatory increases in institutional costs, leaving minimal flexibility to absorb additional expenses. This structural deficit, compounded over several years, places serious strain on our financial foundation.
- Have the financial challenges of the Medical Faculty Associates (MFA) contributed to GW’s budget challenges?
Although most of GW’s challenges are occurring because of our structural imbalance where our increasing expenses are outpacing our revenues, the MFA is also having some impact. We are actively working to address these challenges and expect to have more to share on these actions in the coming months.
- What actions is GW taking to address the budget issues?
To achieve our goals and address this complex environment effectively, we must prioritize efficiency, collaboration, and strategic planning. Key guidance provided to leaders for fiscal 2026 includes the following:
Operating Costs
GW will need to undertake a 3 percent reduction from its fiscal 2025 total expense budget. This cost reduction is essential to addressing our structural deficit and establishing a sustainable financial foundation for the future. To ensure flexibility and readiness, we have asked each unit to prepare budgets that incorporate a recurring and sustainable 3 percent reduction from fiscal 2025 expense budgets. These cuts should be as strategic and targeted as possible, meaning that while we need to achieve a net 3 percent cumulative reduction, we do not necessarily intend to cut by 3 percent across the board.
As these new reductions are established, we will sunset the position management review process implemented earlier this year at the end of fiscal 2025 (June 30) so that deans and administrative leaders can manage decisions about new positions and vacancies in the context of their strategy for their college or division.
Merit Increases
Due in large part to concerns over fall enrollments, the merit increases that typically go into effect in July will not take place. We will closely monitor these financial conditions to see if circumstances permit us to revisit this decision.
Endowment Spending
Endowment payouts should be prioritized to support necessary operating expenses before tuition and other revenues. Unless stipulated by the endowment requirements, we expect all units to maximize their endowment spending to support current operating expenses in line with the gift agreements. We will work with deans and other endowment owners, finance directors, and development colleagues to document the current plan for each endowment’s use in fiscal 2026 and beyond. Additionally, the Office of the Provost, University Budget Office and Development and Alumni Relations are working together with units to address hard-to-spend endowments.
Budget Model
Leaders will continue using the current budget model for fiscal 2026 planning purposes while we transition to the new model currently under development.
- Is the university considering layoffs to address the budget challenges?
We do not plan to implement university-wide layoffs to address the current budget challenges. However, as each school and unit leader prepares their budget to incorporate a recurring and sustainable 3 percent reduction from fiscal 2025 expense budgets, they have discretion to make decisions based on what is best for their school or unit. In some cases, leaders may determine they need to reorganize teams, which could include limited reductions in force.
- Why can’t the university use more funding from the endowment to address these budget issues?
Although we always look to maximize distributions from the university endowment, the endowment is not intended to be used to address structural budget deficits. It is also important to note that many funds that comprise the endowment are restricted in their use (e.g., some funds may only be used for a specific scholarship, professorship, or initiative).
- Why does GW need an operating margin?
The Board of Trustees and President have set clear financial goals to build stability and resilience. For fiscal 2026, we aim to achieve an operating margin of 1 percent (approximately $14 million from $1.4 billion in revenues). This marks a key step toward reaching a recurring and sustainable operating margin of 3 percent or higher over a five-year cycle. An operating margin is a critical metric in assessing an institution’s financial health. These targets will allow us to invest in the university’s future while maintaining financial strength and providing flexibility to deans and administrative leaders to manage their colleges and divisions.
- What is the timeline for developing budget plans?
In the coming weeks, leadership in the schools and units will review fiscal 2026 operational plans and ensure alignment with our financial objectives. The budgeting timeline will be extended into the summer, which will allow sufficient time to develop detailed plans that align with strategic priorities while identifying opportunities to optimize expenses. Leaders in schools and units will share additional information as it is available.