If you’ve ever gotten a Pell Grant to pay for college, or a federal student loan, or completed work study – the government probably paid for it.
Higher education and the federal government have been intertwined to the point that college would look much different if they were not. What is not always clear is what rules govern those relationships, which have existed for more than a century. So, for example, what agreements do the two have, and how and why can either party break them?
“These institutions that are very largely funded by the federal government do have a responsibility to deliver. And I think, quite honestly, we’re sort of re-examining what that means right now,” says Beth Akers, an economist and senior fellow at the American Enterprise Institute, a Washington think tank.
Why We Wrote This
As universities and the Trump administration battle over federal funding, more questions arise about the obligations around grants and other financial arrangements – and what’s at stake if those systems falter.
On Monday, oral arguments were heard in a pivotal case concerning Harvard University and the Trump administration over more than $2 billion in federal funding cuts over an ideological clash. Steven Lehotsky, an attorney for Harvard, which is suing the government, called the recent actions a “blatant, unrepentant violation of the First Amendment,” referring to what he calls “viewpoint discrimination,” according to reporting in The New York Times. Judge Allison Burroughs, who commented that she is Jewish, asked the government’s lawyer, Michael Velchik, how antisemitism and scientific research are connected. The administration says it has the right to choose where it spends grant money. “The government does not want to fund research at institutions that fail to address antisemitism to its satisfaction,” said Mr. Velchik, the Times reported. Judge Burroughs’ ruling in the case could come at any time.
However she rules, President Donald Trump’s “Big, Beautiful Bill” is already starting to change the system in several ways: It alters student loans that low-income and middle class families rely on to pay for college, and puts caps on how much students can borrow for law and medical school. The new tax bill also aims to hold schools and programs accountable. Institutions risk losing federal funding if their graduates fail to earn more than a working adult with only a high school diploma.
“For a long time we celebrated institutions as this golden ticket to the American Dream, and as long as they kind of looked like they were doing that, that they were protecting civil rights, very roughly speaking, we let them go,” Dr. Akers says. “But I think there is a new call to institutions to deliver for what they receive, which is all this funding from taxpayers.”
The president’s proposed budget, which has not been voted on yet, also includes major cuts to research and federal student aid. This and other recent actions by the administration highlight the depth and demands of these long-standing agreements.
In how many areas do colleges and universities converge financially?
Arrangements between the government and higher education have existed for decades, covering everything from real estate to research. The Morrill Land Grant Acts of 1862 and 1890, for example, created land-grant colleges in states from the sale of federally owned land.
Melanie Stetson Freeman/Staf/File
Today, a variety of government agencies offer grants to colleges and universities. The U.S. Department of Education gives grants that help with the operation of college sports, for example. And science grants are regularly given to colleges and universities from a range of agencies including the National Science Foundation (NSF) and the National Institutes of Health (NIH).
Most private and public nonprofit colleges are tax-exempt and do not pay income taxes including on revenue from athletic events, such as ticket sales. Many are also exempt from property taxes. But colleges and universities are responsible for payroll taxes. The recently passed “Big, Beautiful Bill” is also changing the current tax on university endowments. Using a formula based on the number of students enrolled and the size of the endowment, the rate will rise for some wealthy schools, mostly highly-selective ones, from the current 1.4% to either 4% or 8%.
What are the biggest intersections of the federal government and higher education?
One of the most significant ways the federal government funds higher education today is through student loans. Federal Student Aid can be traced back to the 1965 Higher Education Act, which called for financial assistance to college students via loans, scholarships, grants, and work study under that bill’s Title IV.
“It ends up being this really complex system where the federal government helps facilitate students to afford college through a number of different programs,” says John Cheslock, a professor at Penn State University who studies the way colleges and universities are funded.
The U.S. budgeted $135 billion for federal student aid to colleges for fiscal year 2025, which ends September 30. That figure includes $39 billion for the Pell Grant, around $1.25 billion for work study, and more than $93 billion for loans.
Budget proposals for the next fiscal year include decreases to federal work study (down $980 million) and would require schools to pay for 75% of associated costs. In addition, the “Big, Beautiful Bill” makes significant changes to the student loan program, by consolidating multiple programs into two, and increasing payment plans for one of them. The Department of Education said the bill is “simplifying the student loan repayment system” in a statement on Friday, when it announced that implementation has begun.
The bill also eliminates the graduate PLUS loan program and caps graduate loan borrowing to $20,500 a year or a lifetime total of $100,000. It also limits loans for professional schools to $50,000 a year or a $200,000 lifetime total. It caps parent PLUS loans at $65,000 per individual or $20,000 annually.
Besides being involved in student loans, the government, through the Higher Education Act, also gives money for historically Black colleges and universities, minority-serving educational institutions, and tribal colleges. The support is aimed at funding institutions with a higher number of low-income students. These schools saw a bump (an investment of more than $17 billion) during the Biden administration, but cuts have been proposed for them.
Another major area of federal funding is research, with some $60 billion currently set aside for that purpose. The NIH receives the largest share at $48 billion, while the NSF receives almost $10 billion. While the NIH funds research related to health, there are at least 20 other government agencies that also fund research – at a rate of hundreds of millions to billions of dollars annually – including the Departments of Energy, Defense, Agriculture, and Veteran Affairs.
Unlike federal student aid, Dr. Cheslock says, research dollars are more concentrated. “You can think of the research bucket as being especially important for the most advantaged institutions,” he says.
Most, if not all, of the schools that get the bulk of that money have strong doctoral programs and are recognized as practicing the highest level of research. That is why names like Harvard, Columbia, and President Trump’s alma mater, the University of Pennsylvania – all Ivy League schools – have dominated headlines, because they get large chunks of federally funded research dollars. Other schools, such as Johns Hopkins University, which is the biggest beneficiary of grant money from the NIH, have already sustained significant cuts to funding under the current administration.
How do colleges and universities qualify for funding?
The baseline for any college or university receiving federal funding is that they must be accredited by a recognized regional or national accrediting agency. Accrediting agencies, which are nongovernmental, verify that schools meet quality standards and are in good financial standing. For a college or university to receive money for federal student aid, compliance with Title IV is important, and schools must sign program participation agreements acknowledging that they have to comply with Title IV to receive money. They must make sure that students who apply meet guidelines for federal money; they must return money if students withdraw; and they must regularly submit to audits to demonstrate financial stability.
“Except for those schools that forgo Title IV funding because they don’t want to comply with certain federal policies, which is a small number of institutions, [federal funding] affects all of them,” Dr. Cheslock says, noting that the schools that opt out are mostly religiously affiliated.
Colleges and universities must also adhere to the Clery Act, which requires them to collect and report campus crime statistics. And as part of complying with Title IX – a civil rights law – schools can’t discriminate based on sex in any programming or activity, such as athletics.
The fact that dozens of schools closed last year and that more are in danger of closing is a sign that accreditation is broken, Dr. Akers says. Another sign she sees is that students aren’t earning decent salaries, but are saddled with debt. She suggests that there is a need for more accreditors.
The Trump administration also sees the system as broken. Its current plans are for the Department of Education to work with a larger list of accreditors and prioritize schools being graded on what programs’ returns are for students. The administration has argued that both Harvard and Columbia should lose their accreditation because they are in violation of federal civil rights law.
What is owed to the government for federal funding?
Schools receiving research money have compliance guidelines for their work.
That money is issued to institutions, which supervise the spending by researchers, says Harold Varmus, a Nobel Prize-winning scientist and former NIH director under Bill Clinton. The money pays for salaries, training of graduate students or postdoctoral fellows, and equipment. A portion of grant money called indirect costs goes toward facility maintenance, and is calculated by auditors during a “thorough” process, according to Dr. Varmus. Grants are typically three to five years, but can run longer. Some grant money is as small as paying for meetings.
“It’s a highly regulated process that is not casual at all, and the idea that there’s a lot of waste and abuse in this process is completely ridiculous,” Dr. Varmus says.
Grant money is paid out annually, he says, but a multiyear grant’s remaining balance is included in every new budget. The expectation is that grantees report how the money was spent; publish research findings in scientific journals and make the findings available to the public; and host regular meetings to update individual agencies on their work. He says that research can change – sometimes equipment is damaged and grantees have to amend requests to ask for more. It is extremely rare for grants to abruptly end or be canceled, he says.
Under the 1974 Impoundment Control Act, the administration has three options for action, says Cerin Lindgrensavage, a lawyer at Protect Democracy. Those are: Delay spending after sending very detailed reasons to Congress; get Congress to rescind funding, which just happened with $9 billion in cuts to foreign aid and PBS and NPR; or go ahead and spend the money.
“None of the legal options,” Ms. Lindgrensavage says, “are that you can just sit on the money as long as you like.”
