USC Warns of Staff Layoffs Amid $200 Million Deficit

Even prior to the cuts in federal funding, USC had been running at a deficit for several years.

The University of Southern California (USC) in Los Angeles, Calif. on March 11, 2020. Frederic J. Brown/AFP via Getty Images

The University of Southern California (USC) has announced that it will lay off staff and embark on other cost-cutting measures as it faces a $200 million deficit, as well as state and federal funding cuts, that interim President Beong-Soo Kim described as creating a “volatile external environment.”

In a July 14 memo sent to faculty and staff, Kim detailed how the decision was made because of considerable shifts in federal funding, as well as a likely decrease in international student enrollment.

“The ultimate impact of these changes is difficult to predict, but for a university of our scale, the potential annual revenue loss in federally sponsored research funding alone could be $300 million or more,” he wrote. “We cannot rely on the hope that federal support will revert to historical levels.”

USC is one of many universities now facing cuts that have historically relied on federal funds for research, hospitals, and student financial aid.

“To deal decisively with our financial challenges, we need to transform our operating model, and that will require layoffs,” Kim wrote.

He did not outline how many people might be laid off.

Alongside cuts in federal financing, USC faces a structural deficit, with revenue having fallen short of expenses for several years.

The university implemented temporary measures in March, including budget reductions and a pause in hiring. USC ended its 2025 fiscal year facing an operating deficit in excess of $200 million. In 2024, the university posted a $158 million deficit. The university is home to the USC Marshall School of Business, which is often ranked among the nation’s top business schools.

“Left untamed, this recurring, structural deficit erodes cash reserves, constrains future planning and capital needs, and is simply unsustainable,” Kim stated.

The university has taken other steps to address the deficit, such as ceasing some third-party services, while instituting discretionary spending and travel controls.

Kim says that the school is committed to further cuts, such as selling unused properties, eliminating redundant operations, and lowering compensation for the university’s highest-paid employees. USC created a website to pool ideas from students and faculty on how best to tackle its financial challenges.

“While important steps, these measures will not be enough by themselves to reverse our structural deficit and weather the new federal environment,” Kim wrote in the letter. “Nor is it feasible to rely on increased tuition revenue, draw more from our endowment, or take on additional debt.”

USC is one of many schools facing a rapid change in the higher education environment, as federal cuts affect institutions across the country.

California’s higher education system is facing not only federal cuts.

The California state budget for the current fiscal year reduced state spending on the University of California (UC) system by approximately $130 million. The reductions could result in fewer courses and reduced academic support, according to the Legislative Analyst’s Office.

The state says UC’s spending priorities exceed available funding, requiring UC to make changes in hiring and in freezing and cutting expenditures.

“Though UC does not yet know how it would respond to the deferrals, it would face more disruptive budget adjustments if it increased spending in 2025‑26 and then the deferred payments were eliminated or postponed,” the Legislative Analyst’s Office wrote in February.

UC has been directed to increase enrollment without increased state funding.

Mary Croughan, University of California–Davis provost and executive vice chancellor, wrote about the effects the cuts would have on the Northern California campus.

“We have worked diligently for many years to address our core funds structural deficit,” Croughan wrote in March. “We have made progress, but not without real costs for our community. People are tired of doing more with less. Morale has suffered.”

Nonetheless, she wrote that state budget cuts, federal cuts, and increasing campus costs would likely increase the university’s structural core funds deficit.

UC–Davis also instituted a hiring freeze this spring amid funding cuts for the University of California system in the 2025–2026 California state budget.

UC–Davis Chancellor Gary S. May wrote in March about the significant cuts in federal research funding that it is facing, specifically addressing a proposed cap on expenses federal funds will cover at the facilities and administration level.

“A proposed 15 [percent] cap on NIH reimbursement for facilities and administration costs, or F&A, would be devastating, equating to a loss of $70 million in research funding at UC Davis if the rule were applied to this year,” he said.

University of California–San Diego Chancellor Pradeep K. Khosla addressed in February the change to federal research funding. He wrote that these changes could lead to $150 million less flowing to UC–San Diego annually.

“Given the potential for financial impacts as a result of anticipated federal and state budget cuts, we are creating contingency plans to address potential deficits and taking steps to reduce expenditures,” Khosla wrote.