As large as it is, income from the endowment covers about a third of the total operating costs of the university. There are contractual limits on what different funds can be spent on, though you can bet that as we speak, accountants at Harvard are going through ledgers to see what funds can be shifted around. You can bet that calls and letters are going out to donors and alumni. In fact, this is incentive to make the endowment bigger, so that it can cover more.
And if you divert income from one fund, or liquidate it to raise cash, that comes out of someone's budget one way or another--as the saying goes, you are robbing Peter to pay Paul. And in the long run, it leaves them with less. The feds are trying to force them to choose to cut programs they don't like--they've been explicit about that in the demand letter.
