By Michael K. Townsley and Jack Corby
Tuesday, June 24, 2025
As Congress negotiates the 2025 federal budget, the implications for higher education are far-reaching. From student aid cuts to research slowdowns and shifting priorities around workforce development, the debate in Washington is more than a fiscal exercise — it’s a realignment of values that will shape the future of colleges and universities across the country. This post breaks down the key proposals, four major items stake, and how institutional leaders can prepare for Fall 2026 and beyond.
This year’s House budget proposal would roll back several cornerstones of federal student support. The bill eliminates eligibility for students taking fewer than half-time courses and raises the credit threshold for full-time Pell status from 24 to 30 credits annually¹. Worse, it proposes reducing the maximum Pell Grant from $7,395 to $5,710² — a cut of $1,685 per student. The CBO estimates this would reduce total Pell spending by billions over the next decade².
Federal Supplemental Educational Opportunity Grants (SEOG) would be eliminated under the current draft³, and Work-Study funding would be significantly reduced, disproportionately affecting low-income and first-generation students⁴. For regional public colleges and community colleges in particular, this could have a severe impact on enrollment and student persistence.
The budget also includes freezes and staffing cuts to major research agencies. The Trump Administration’s directives earlier this year have already triggered layoffs affecting over 1,000 staff at NIH and a 10% cut at NSF⁵. The proposed budget caps NIH indirect cost reimbursements at 15%, which many institutions argue is unsustainable⁶.
As a result, universities are reporting rescinded graduate admissions offers, delayed lab projects, and hiring freezes. “The impact this is having on universities and students is chaos,” one administrator told The Guardian⁵. If enacted, these measures would slow America’s research engine for years to come.
Amid the cuts, there is bipartisan support for extending Pell eligibility to short-term, workforce-aligned credential programs⁷. These initiatives, which target sectors such as healthcare, logistics, and skilled trades, are positioned as faster and cheaper pathways to career entry — and a lifeline for non-traditional learners.
But concerns remain. Without stronger federal oversight, there is a risk that predatory programs will flood the market, dilute quality, and undermine student return on investment (ROI) ⁷. Institutions would be wise to pair new credentials with local employer partnerships and transparent outcome data.
Beyond cuts, the budget also includes enhanced oversight of institutions receiving federal aid. Proposals include tying Pell and loan eligibility to student outcomes, such as completion rates and default levels. Lawmakers are also exploring “skin in the game” provisions that would require institutions to repay a portion of a student’s loan if the borrower defaults on it.⁹
These ideas align with the broader Congressional trend of shifting financial risk from the federal government to institutions — especially for programs with poor ROI. Schools will need to strengthen data systems, boost student support services, and prepare for stricter compliance reporting.
In an environment marked by fiscal uncertainty and shifting federal priorities, it’s critical for CFOs and institutional leaders to model a wide range of financial scenarios now—before budget shocks become unavoidable. A proactive approach allows for better preparedness, communication, and decision-making.
1. Construct Budgets with a Range of Enrollment and Funding Assumptions:
Start by developing a baseline operating budget that includes a conservative enrollment estimate—bracketing projections between zero and minus one standard deviation from your historical average. This approach accounts for potential declines in tuition revenue due to enrollment softening, FAFSA complications, or shifting student preferences. Incorporate contingencies for potential reductions in federal aid, delayed disbursements, and reduced indirect cost recovery from federal research grants.
Use the below template to aid in your budget construction and modeling:
2. Stress-Test Your Budget:
Use scenario-planning tools or the included template below to test your institution’s financial resilience. Assess how your operating margin, cash flow, and reserves would respond to specific triggers such as:
A 5-10% drop in undergraduate enrollment
A delay or cut in federal student aid
A 15-20% reduction in federal research funding
Increases in institutional aid or discounting
Inflationary pressures on salaries and facilities costs
Each scenario should include concrete mitigation levers: hiring pauses, delayed capital projects, revised financial aid models, and revenue diversification strategies. Engage key units—enrollment, advancement, academic affairs, and research administration—in identifying and stress-testing assumptions collaboratively.
3. Map Federal Exposure Across Revenue Streams:
Create an internal audit of your institution’s reliance on federal dollars—not just for student aid and research, but also for workforce development, TRIO programs, and other federal contracts or appropriations. This will help quantify risk exposure and guide conversations with trustees, campus leadership, and government relations teams.
4. Rehearse the Response:
In times of fiscal tightening, institutions that act quickly and communicate clearly fare best. Develop internal communications plans and operational playbooks now—so if scenarios unfold, you’re responding strategically, not reactively.
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