Article
Facing the future: How higher education institutions can thrive under a new federal compact
July 4, 2025 · Authored by Daniel Greenstein
America’s colleges and universities have long been engines of social mobility, workforce development and knowledge creation. That will not change. But to continue fulfilling these missions into the 21st century, higher education must transform its business and operating models in response to profound changes in the proposed 2026 federal budget.
This proposed budget could mark a significant shift in the compact between the federal government and higher education. While it is not the sole cause of the pressures faced, it is a powerful catalyst accelerating changes already underway.
What could change
The new budget proposes deep reductions to research funding from agencies such as the National Institutes of Health (NIH), National Science Foundation (NSF) and National Endowment for the Humanities (NEH). These cuts would reduce the grants available to faculty and researchers and slash overhead reimbursement rates. For universities, that represents a major hit to discretionary revenue, which supports everything from student services to strategic initiatives.
Potential cuts to Pell Grants would lower the awards available to low-income students and narrow eligibility, threatening access for those who need support most. Reductions to federal loan programs could extend this challenge to middle-income students as well, further depressing enrollment.
Other proposed changes include cuts to TRIO and GEAR UP programs, undermining support for academically at-risk students preparing for college, and increases in the endowment tax, diverting funds that would otherwise support scholarships. Meanwhile, curtailment of international student visas – a change expected alongside the budget – threatens to reduce graduate enrollment and weaken research capacity, as international students make up nearly a quarter of U.S. graduate enrollments.
