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Harvard took out a $36 million standby letter of credit from Bank of America at the end of October after the Department of Education imposed stepped-up financial oversight earlier this fall.

The Education Department required Harvard to secure the letter when it placed the University on heightened cash monitoring status in a September press release, saying Harvard needed to prove that it could continue to fulfill its financial obligations even if it lost federal funding or faced new costs.

But even as Harvard has reluctantly complied, it has repudiated the government’s reasoning. University spokesperson Jason A. Newton wrote in a statement to The Crimson that the Education Department’s request for the letter of credit is “unnecessary and unwarranted.”

“While Harvard rejects the government’s claims regarding the University’s financial solvency, it has obtained a letter of credit to put this issue to rest,” Newton wrote.

Harvard disclosed the letter in a filing to bond investors on Oct. 31. The agreement with Bank of America expires next year.

The decision to place Harvard under HCM status was unusual, several higher education experts said in September. The status is largely used for struggling technical and for-profit colleges — not for powerhouse universities like Harvard, which boasts a $56.9 billion endowment.

Taking out a standby letter of credit is likewise an atypical move for Harvard, which retains top-tier credit ratings despite increased financial uncertainty.

According to Robert J. Kelchen, a professor of higher education at the University of Tennessee, one of the purposes of a standby letter of credit is to protect taxpayers if “a university is unable to meet the conditions of federal financial aid.”

“These letters of credit go to institutions that are deemed financially riskier or on the verge of closure, and that way if the institution shuts down quickly, taxpayers get at least some money back,” Kelchen added.

In the event that Harvard’s finances collapse, the letter guarantees that Bank of America will issue Harvard a loan of up to $36 million to fulfill its obligations to the federal government, distribute unpaid financial aid to students, and finish teaching current students or facilitate their transition to degree programs at other schools.

The Education Department cited the Trump administration’s own threats to Harvard as a source of “growing concerns regarding the university’s financial position” in the September press release, pointing to the possibility that it would levy penalties for alleged violations of Title VI of the 1964 Civil Rights Act — formalized in a June finding that accused Harvard of permitting antisemitism on campus — or if the University refused to turn over documents on its consideration of race in admissions.

The press release also referred to Harvard’s decision to issue $1.2 billion in bonds this year, claiming the bond sales were likely to “have a significant adverse impact on the financial condition of Harvard.”

Even if Harvard’s budgetary struggles are not existential, they have left few parts of the University untouched. Harvard has laid off dozens of workers this semester and signaled that more layoffs could be on the horizon, especially as the University anticipates paying roughly $300 million under an increased tax on its endowment income. Several of its schools have said the new costs have exposed cracks in their underlying financial practices.

But Kelchen said that, rather than indicating underlying financial instability, the mere act of placing the University on HCM status was “a political statement more than anything else.”

The University’s stable financial reputation — and sizable endowment — may have given it a relatively smooth path to obtaining the Bank of America letter, in contrast to struggling institutions, which represent larger risks to banks.

“Harvard is not exactly a financially risky institution,” Kelchen added. “Instead, a bank considering whether to issue a letter of credit has to take on the political risk that the federal government could go after the bank for them issuing this letter of credit.”

The letter does not signal Harvard is in financial danger, Kelchen said — it simply represents another clash with Republicans in Washington.

“It means that Harvard is on the federal government’s naughty list, and Harvard is in no danger of failing financially,” Kelchen said.

—Staff writer Cassidy M. Cheng can be reached at cassidy.cheng@thecrimson.com. Follow her on X @cassidy_cheng28.

—Staff writer Elias M. Valencia can be reached at elias.valencia@thecrimson.com. Follow him on X @eliasmvalencia.