Campus Crossroads: How Political Turbulence Threatens University Endowments

The arrest of Mahmoud Khalil, a Palestinian-American Columbia University graduate student, has become a flashpoint in a growing clash between U.S. foreign policy and academic freedom. Detained in March 2025 under a rarely used immigration statute, Khalil's case—framed by the State Department as a national security issue—exposes vulnerabilities in the financial foundations of elite universities. Beyond its legal and ethical dimensions, this episode underscores a systemic risk to higher education endowments, which now face unprecedented pressures from geopolitical tensions, declining international enrollments, and activist-driven divestment campaigns. For investors, the writing is on the wall: universities are no longer insulated from the volatile crosscurrents of U.S. foreign policy.

The Khalil Case: A Microcosm of Systemic Risk

Khalil's detention—justified by claims that his pro-Palestinian activism harms U.S.-Israel relations—has ignited debates over free speech and executive overreach. While a federal judge recently ordered his release, the broader precedent is alarming. The State Department's assertion that dissenting views can trigger deportation sets a dangerous precedent for universities hosting international scholars. For institutions like Columbia, which relies on international students to fund roughly 30% of its undergraduate program, the ripple effects are financial as well as ideological.

Consider the numbers: Columbia's international student population fell to 29% in 2024 from 34% in 2023, with projections of further declines as visa denials and fear of surveillance grow. . Each lost student represents a potential $70,000 annual tuition loss, a hit to budgets already strained by rising legal costs. Over 300 international students have faced visa revocations since 2023, a trend that could accelerate if the U.S. continues weaponizing immigration law.

Endowment Exposure: Geopolitics Meets Portfolio Risk

The $53 billion Harvard endowment and Columbia's $7.5 billion fund are not just financial instruments—they are reflections of America's global influence. But their investments in defense contractors, surveillance firms, and companies with ties to Israel's military ventures now face scrutiny. Divestment campaigns, fueled by public sentiment (53% of Americans now hold unfavorable views of Israel), threaten to force asset sales at a loss.

Take Palantir Technologies, a data analytics firm with contracts supporting Israel's security apparatus. Its stock price has fallen 22% since late 2024 amid activist pressure. . Universities holding such stocks face a choice: retain controversial holdings and risk reputational damage, or divest and accept reduced returns. Either path could shave 2–3% annually from endowment growth—a significant drag on long-term financial health.

The Legal and Reputational Toll

Beyond direct financial losses, universities are grappling with escalating legal expenses. Columbia alone has spent millions defending against lawsuits from groups like Palestine Legal, which argue that disciplinary actions against activists violate free speech. These costs divert funds from research and scholarships, weakening the very missions that attract top talent and donors.

Meanwhile, reputational damage looms large. Universities perceived as complicit in policies seen as anti-Palestinian risk losing applicants and donations from sympathetic regions. The University of California system, for instance, has seen a 15% drop in applications from Middle Eastern countries since 2020. . Such declines could spread to institutions without clear anti-surveillance policies, further straining endowments.

Investment Implications: Navigating the New Terrain

For investors, the Khalil case is a wake-up call. Here's how to position portfolios:

1. Avoid Overexposure to University-Linked Assets:
2. Short ETFs tracking higher education stocks or real estate trusts tied to campuses.

3. Stay cautious on endowment-linked funds; institutions may underperform as enrollment and investment flexibility decline.

4. Divest from Controversial Tech:

5. Sell holdings in firms like Palantir or surveillance vendors with ties to contentious foreign policies. Their stock valuations are likely to remain volatile.

6. Support Neutral Alternatives:

7. Invest in universities with strong anti-surveillance policies (e.g., MIT's OpenCourseWare initiative) or education tech platforms that avoid geopolitical entanglements.

Conclusion: A Crossroads for Academia

The Khalil case is more than a legal battle—it is a pivotal moment for higher education's financial future. As universities navigate the twin pressures of geopolitical risk and free speech activism, their endowments face existential challenges. Investors ignoring these dynamics may find themselves on the wrong side of a generational shift. The path forward requires vigilance, diversification, and a clear-eyed view of how politics is reshaping the academic landscape.

In the end, the Columbia campus—a symbol of intellectual freedom—now stands at a crossroads. For investors, so too does the future of higher education finance.