Trump-induced chaos is making financial matters much worse for schools. Moody’s has just downgraded its outlook for higher education for 2025 from stable to negative citing the actions the government has taken and is threatening to take against colleges and universities.
Most colleges and universities have been beset by financial challenges for a number of reasons over the last several years including enrollment challenges both because of the demographic cliff and because there are fewer students who are willing and/or able to pay the tuition as well as the inability to quickly adjust to changing market demands. We have witnessed schools trying to maintain balanced budgets by contracting their curriculum and reducing the size of their faculty and staff; we read about these changes almost daily in the higher education press. Because of these challenges, schools have been working to develop new financial equilibriums and to reshape themselves; the current climate is exacerbating these challenges for colleges and universities.
First, Trump has signed numerous executive orders relating to colleges and universities on a variety of issues and policies ranging from antisemitism, diversity, equity and inclusion (DEI), gender-related issues and Title IX. In addition, his America first agenda is affecting immigration and visa policies which impact students, faculty and staff at institutions of higher education. To begin with, Trump froze all research funding so that the administration could decide what should be funded and to be sure that the research was not in any way antithetical to U.S. policies especially those supporting DEI. Quite quickly the freeze was blocked by a judge but by then it had been made clear to schools that their research funding was in serious jeopardy. Beyond the implications of eliminating significant research funding is its impact on graduate student enrollment and on the way colleges and universities operate. Many graduate students are supported in large part by research funds and many researchers are partially paid from research funds and partially paid from instruction funds. When research funds are eventually reduced, which seems likely, significant staff reductions and reallocations will be required unless institutions can come up with other funds to support these positions which is highly unlikely.
Beyond the loss of the research funds and the positions directly associated with the research, because most research funding comes with indirect cost recovery which are additional funds included in the research grant to cover the cost of the facilities, administrative expenses, and other overhead provided by the college to support the research, colleges will have even fewer funds. And there is talk that on grants that are awarded, the indirect cost recovery rates will be reduced. This will leave institutions with fewer funds to support their overhead which will need to be reduced; this type of reduction can’t happen overnight especially where facilities support is concerned. Again institutions will need to quickly change the scale of their operations.
Trump’s proposals will have serious enrollment implications. Several research universities have already announced a pause on graduate student enrollment given the uncertainty in federal funding. The U.S. has historically been an attractive place for international students to study but in the current climate, it will be very difficult to attract international students. Many schools have been increasing their undergraduate international student enrollment given declines in U.S. students attributable both to the demographic cliff as well as the decrease in college-going rates of high school graduates. A reduction in enrollment will have serious fiscal implications for the resources available for U.S. schools to operate.
Further exacerbating enrollment concerns, are the various policies that schools are implementing relative to freedom of speech and demonstrations. Depending on the policies implemented by the institution, they may become more or less attractive to current and potential students. Furthermore, the required elimination of all programs related to DEI, are likely to have an impact on retention of students as many of these programs provide support services for students of all kinds as well as provided spaces for affinity groups to meet and even to live together which helped students connect with their peers and their institution. In addition, with the significant cuts that have already been made to the education department budget and those that are expected, there is serious concern that students may not receive their federal financial aid in a timely fashion.
Trump has also discussed increasing the tax on endowment income and expanding the endowment tax to many more institutions. Endowment income is used to support a variety of activities but much of it, especially at non-research institutions, goes to support student scholarships. Reductions in available funds for financial aid will further decrease enrollment and reduce funds for other higher education activities which will further exacerbate higher education’s financial woes.
In response to the actions that have been taken and the uncertainty of what is to be expected, institutions are pausing capital investments, freezing hiring, and cutting spending. In the last week, the Trump administration has flexed its muscle by freezing $400M in funding to Columbia University and giving the University an ultimatum that it must meet nine demands before it will even discuss unfreezing these funds. Yesterday, the federal government announced on X a pause of $175M in federal funding to the University of Pennsylvania over its policies related to transgender students competing on women’s athletic teams.
How much are schools willing to risk by sticking with their core values? Even if schools wish to comply with the ever-changing federal instructions, what will be acceptable. Are schools going to let the federal government dictate how they run their institutions and what their curriculum looks like? These are all very significant questions that impact both institutional viability as well as institutional autonomy that must be dealt with over the coming weeks and months. Colleges and universities, already facing serious financial issues, are finding their very existence threatened by the federal government. Will they survive? Will we recognize them?
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