What Is at Stake for Higher Education Under a Second Trump Administration?

The Issue:

Colleges and universities face an era of heightened uncertainty, reform pressures, and potential economic headwinds under the incoming Trump administration. Some of the most cited concerns pertain to cultural issues — including diversity, equity and inclusion policies; gender in sports; and freedom of speech — which are beyond the scope of this analysis. The new administration could also make changes that directly affect the finances of America’s colleges and universities. A look at the areas of greater potential financial impact, as well as what happened during the previous Trump administration, can give a sense of the financial exposure for the industry — and which segments are most vulnerable.

The finances of most colleges and universities face negative prospective impacts from stated policy initiatives by the incoming Administration.

The Facts:

• Higher education revenues that stem from the federal government are substantial. Colleges and universities are funded by a mix of sources that vary by type of institution and includes tuition and fees; federal, state, and local government funding; and investment income from endowments. Federal revenues currently make up about 27% and 17% of revenues at 2- and 4-year public institutions, respectively, and 17% of revenue at 4-year, private nonprofit institutions. The two main ways in which the federal government provides funding for higher education are in the form of student aid and federal funding for research. 
• Federal research funding is one source of direct federal support that could be cut. The federal government spent close to $60 billion on scientific research in higher education in 2022 (see chart above). The impact of cuts to such R&D spending could be substantial, particularly for those institutions that heavily emphasize research. The Carnegie Classification system places 146 of them —about 5.5% of 4-year colleges and universities — in this category (labeled as “R1” institutions). Those with medical schools and engineering schools could be especially hard hit. Few specific details are available, but indirect statements from Trump’s team are indicative of reduced support. One way that such cuts could be implemented is through a reduction in funding to cover overhead costs at institutions that receive federal research funding. While Trump proposed such cuts in his first administration, support for educational research actually rose slightly during President Trump’s first term. But broader pressures to reduce government spending or to offset tax cuts during this administration could lead to significant cuts. The largest negative shock to research funding occurred under President Obama, following passage of the Budget Control Act of 2011. That law contained “sequestration” provisions that required across the board budget cuts in the following years. As a result, federal spending on academic research dropped by $6 billion (11%) between 2011 and 2014. For highly research-intensive institutions, a reduction of this magnitude in the new Trump Administration would be damaging, should it occur. If we assume that all such funding were awarded to R1 institutions (which would be an overstatement), such a cut would reflect a $41 million drop, on average, in research funds per school. 
• Federal financial aid reflects another direct source of federal funding that may be cut. The federal government provides several programs that offer financial support for enrolled college students. Some programs directly reduce the price that students pay, including Pell Grants, Federal Work-Study (FWS), and Supplemental Educational Opportunity Grants (SEOG). Pell grants are the largest of these, totaling $31 billion in 2023-2024. While their value eroded with inflation during President Trump’s first term, they were not a direct target and they currently receive some measure of Republican support so it does not appear that Pell Grants face a direct threat. The same cannot be said for the other two programs. Recent proposals sponsored by Republicans already exist to eliminate both of them. With Republican majorities in both houses of Congress and a Republican President, their future is clearly in jeopardy. Although their elimination may be costly to some students and institutions, they are small programs, each costing around $1 billion annually. 
• Reduced student loan funding may continue to provide less support to college finances. Much public attention has focused on the issue of student loan forgiveness, which likely will not be supported by the Trump Administration. But such a change would affect the federal budget (and the financial outlook for people with outstanding student debt), not the budgets of colleges and universities. What matters for the finances of colleges and universities is the availability of new federal student loans. These loans provide the greatest source of federal funding to cover educational expenses, now totaling $85 billion. Since 2010, though, the amount of inflation-adjusted new borrowing fell by almost half. Reduced enrollment and loan limits for federal Direct Loans that are fixed in nominal dollars contribute to that decline. Demographic changes unrelated to President Trump — namely the significant decline in the numbers of college-age Americans — indicate enrollments may continue to fall. It is difficult to imagine increases to nominal loan limits in the next administration, further diminishing the real value even under traditional rates of inflation. Other more direct efforts may further reduce the availability of loan funds. Project 2025 recommends eliminating federal “PLUS” loans to parents and graduate students. The College Cost Reduction Act (CCRA), which began working its way through the Republican-controlled House of Representatives in 2024, also included these cuts. These loans account for around $25 billion in borrowing. The private sector could fill in the gap, but losing those funds would represent a financial hit to colleges and universities should it occur.
• Institutions may also need to help cover the cost of unpaid student loans. The CCRA also includes accountability provisions that may affect institutional finances. It would require institutions to provide annual payments to the federal government as reimbursement for the unpaid loan balances of former students. My calculations based on data available from the House Committee on Education and the Workforce indicate that such provisions would cost 4-year colleges and universities around $800 million per year once fully implemented. In the aggregate, this burden would not be excessive, but it may be for those institutions whose students borrow more and who struggle more in the labor market. That is by design — the legislation aims to penalize institutions that provide degrees that are expensive relative to their payoff in the job market. For instance, 38 tuition-dependent private colleges and universities would face a budget hit of 10% or more of their revenues if the full force of these provisions becomes effective. To be clear, President Trump has made no reference to this legislation, but it certainly has a greater likelihood of advancing through the process with a Republican president and Republican majorities in both houses of Congress.
• Immigration restrictions and changes in international student enrollment could represent a significant financial hit. International students make up about 4.7% of US college enrollment but their presence varies by institution. At some institutions, the share of international students is much larger than that (31% at NYU and 39% at Columbia University, for instance). International students typically receive limited financial aid and provide needed revenue for many colleges and universities, paying around $30,000 per year to study in the US. In the first Trump Administration, immigration restrictions reduced the number of international students who enrolled in American colleges and universities. Between 2016-17 and 2019-20, there were 50,000 fewer such students (see chart below). Once COVID hit, that number fell by another 150,000 students, although the financial impact on colleges was mitigated by federal subsidies. If enrollment dropped by, say 100,000 students in the upcoming Trump Administration, that would reduce the revenue of American colleges and universities by $3 billion. That number would obviously be scaled up or down depending on the exact magnitude of the enrollment change.

• Taxes imposed on highly endowed institutions may rise. A small number of colleges and universities possess massive endowments and receive very large returns from investing those funds, which historically incurred no taxes. This arises from their classification as Section 501(c)(3) organizations, which exempts them from paying tax if they are “operated exclusively for … educational purposes.” President Trump’s signature tax reduction legislation enacted in 2017 (the Tax Cut and Jobs Act – TCJA) included a provision imposing a tax of 1.4% on the net investment returns of private colleges and universities with endowments greater than $500,000 per student. In 2023, 56 institutions paid this tax. That legislation expires in 2025 and President-elect Trump is seeking to extend it. In 2023, then Senator J.D. Vance introduced legislation to increase the tax rate to 35%, although reducing the number of institutions affected. Other legislation expands the number of targeted institutions. Expanding the tax rate to 35% would have a substantial impact on the finances of highly endowed institutions. My simulations indicate that it could cost each institution subject to such a tax (assuming the current targeting rules) upwards of $250 million per year, representing 23% of their annual budgets. Such a levy would dramatically reduce annual spending and erode the value of their endowments over time.