Higher Education: The Long-Term Consequences of New Federal Policies

The first 100 days of President Donald Trump’s administration were marked by significant policy changes and executive actions with a profound impact on higher education. These early decisions set the tone for the administration's approach to education and have raised concerns about their long-term consequences.

Higher education immediate actions and impacts

Reduced reporting requirements for CTE programs

One of the initial actions was reducing reporting requirements for career and technical education (CTE) programs. This reversed changes to the Perkins V rules, which many educators and administrators found overly burdensome.

Reversing DEI executive orders

Reversing some diversity, equity, and inclusion (DEI)-related executive orders — which had provided targeted support for Hispanic/Tribal/minority-serving institutions — was perceived as a setback for efforts to promote diversity and inclusion within higher education.

Endowment excise tax

During Trump’s first term in office, he introduced the endowment excise tax as part of the 2017 Tax Cuts and Jobs act. This applied a 1.4% excise tax on net investment income for private institutions with at least 500 tuition-paying students and endowment assets exceeding $500,000 per full-time student.

Currently, there are a number of bills, such as the Endowment Tax Fairness Act and the Endowment Accountability Act that to raise the endowment excise tax as high as 21% and lower the threshold for endowment assets exceeding $200,000 per full-time student. Although both bills are still in committee, Congress has indicated they intend to amend the tax via budget reconciliation, which would not only shift the required votes in the Senate from 60 to a simple majority but could also quickly pass as part of the omnibus budget bill. This outcome would compromise raising the tax rate between the current and proposed rate as well as reducing the threshold for assets per student.

Impoundment and freezing federal grants and contracts

The administration's legal argument of impoundment via the Impoundment Control Act involves withholding previously obligated federal funds. It poses a significant threat to the financial stability of higher education institutions relying on federal grants. The argument would take away Congressional authority to allocate and manage financial resources and allow the executive branch to directly shape federal funding.

In late January, Trump froze funds for previously approved federal awards programs. His order has since been halted, but while it’s debated in courts, the administration is applying intense scrutiny to existing awards and pursuing alternative methods, such as impoundment, to rescind federal contracts. Also, new federal awards have slowed significantly under the new administration.

Indirect cost rate cap

In February, Trump imposed a cap of 15% on the indirect cost rate for National Institutes of Health grants. This would limit financial flexibility, potentially hindering the ability to support research infrastructure. Additionally, this has impacted institutions’ ability to accept graduate students to larger research programs.

The federal courts issued a preliminary injunction in March, temporarily halting the cap from going into effect. Though the rate cap is currently on hold, further court battles will decide the proposed changes. The Department of Energy is also seeking to cap indirect cost rates for research funding to 15%.

Revocation of grants

Specific incidents — such as the University of Maine System having all Department of Agriculture grants revoked due to disagreements with the administration on transgender students in sports — highlighted the administration's willingness to use funding as leverage in a wider culture war. The administration also froze approximately $175 million in federal funding to the University of Pennsylvania over the school’s policies for transgender athletes.

Similarly, Columbia University faces $400 million in research grant cuts due to its response to campuswide protests during the Israeli-Gaza conflict. And the White House’s Joint Task Force on Antisemitism froze more than $2 billion in federal awards for Harvard University, citing the institution’s noncompliance with a previous list of demands ranging from eliminating DEI initiatives to banning masks at campus protests. This is accompanied by similar threats to other Ivy League and large public research institutions.

Department of Education workforce reductions

The Department of Education is undergoing a 50% reduction in its workforce, with possibly more cuts down the road, including the entire department. The current downsizing may affect the student financial assistance cluster administration, the compliance supplement, and the administration and guidance provided to higher education institutions.

In March, Trump announced the Small Business Administration would take over administering federal student loans despite also undergoing a significant 43% workforce reduction, but Congress may need to approve such a change.

Targeting of international students

U.S. Secretary of State Marco Rubio made comments to the press on March 28, 2025, “We are not going to be importing activists into the United States. They’re here to study. They’re here to go to class. They’re not here to lead activist movements that are disruptive and undermine our universities.”

The comments and revocation of student visas — as well as high profile arrests of students participating in protests — indicate student visas are fair game for foreign students the administration identifies as being resistant to its policies.

Similarly, on April 16, 2025, Department of Homeland Security Secretary Kristi Noem announced in a memo that Harvard University may lose the ability to enroll foreign students. The administration’s actions highlight foreign students as both priority for deportation as well as leverage in ongoing disputes over institutional policies and research endeavors.

Animosity toward higher education

The Trump administration has communicated a negative outlook on the importance of higher education institutions, which were often criticized by the administration for their DEI initiatives. This adversarial stance further complicates the cultural relationship between the federal government and academic institutions, sparking protests, lawsuits, and financial challenges.

Take a deep dive: Check out our on-demand webinar: Trump’s First 100 Days: Implications for the Higher Education Industry

Long-term consequences of new policies on higher education

Financial instability

The financial instability caused by the freeze and potential cuts to federal grants may have long-lasting effects on the ability of higher education institutions to plan and execute research projects. This uncertainty could deter researchers and students from pursuing careers in academia. As international students often pay greater tuition and fees, this poses a risk to revenue streams of some main operating activities.

Research and innovation

The cap on indirect costs and reducing research grants could stifle innovation and slow the progress of scientific discoveries. Losing funding may lead to discontinuing research initiatives. Additionally, graduate students working in grant-funded positions may see their funding and positions close unless replaced by private awards and contracts.

Diversity and inclusion

Reversing supportive executive orders and the administration’s opposition toward DEI initiatives could hinder efforts to create more inclusive and equitable educational environments. This could have a detrimental impact on the representation and success of minority groups within higher education.

Administrative burden

The Department of Education's workforce cuts may lead to increased administrative burdens on higher education institutions, as they may receive less support and guidance from the federal government. This could affect their ability to comply with federal regulations and access necessary resources as well as cause delays in publishing the annual Compliance Supplement.

Policy precedents

The legal arguments and policy precedents set by the Trump administration could influence future administrations' approaches to higher education funding and regulation. Institutions may need to adapt to a new landscape where federal support is more conditional and politically influenced.

International enrollment

Over the past weeks, federal immigration officials have revoked student visas, raided dorm rooms, arrested green-card holders, and threatened to deport international students who participated in campus protests. The administration has cut many research grants, which help fund many international graduate students’ studies.

Many colleges have decided to pause admissions for affected graduate programs. The administration is considering instituting a travel ban like the one implemented during Trump’s first administration, except greatly expanded from seven countries to an anticipated 43.

How CLA can help with policy change impacts on higher education

Financial instability, increased administrative burdens, and new policy precedents all pose potential risks to the future of higher education.

As the industry continues to navigate these challenges, CLA will continue to provide updates, guidance, and consulting to help you understand the rapidly changing environment. Reach out to our industry professionals with any questions.

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