by Michael K. Townsley | Jun 29, 2025 | News 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, what’s at stake, and how institutional
leaders can prepare.
1. Pell Grants and Student Aid at Risk
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 decade³.
Federal Supplemental Educational Opportunity Grants (SEOG) would be eliminated under the current draft², 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.
2. Research Funding Freeze Threatens Innovation
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As a result, universities are reporting rescinded graduate admissions offers, delayed lab projects, and hiring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.
3. Workforce Pell Momentum — With Risks
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.
4. Accountability and “Skin in the Game” Policies Expanding
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.
How to prepare?
Model Scenarios Now: Prepare for reductions in aid and research support. Stress-test your budget using the template
below.
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Item
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2026-27
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2027-28
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2028-29
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Estimated Lost Federal Funds
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A
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A
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A
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A
|
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Estimated Change in Unrestricted Net Assets without Lost Federal Funds
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B
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B
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B
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B
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|
Estimated Total Change in Unrestricted Net Assets
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C
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C = (B – A)
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C = (B – A)
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C = (B – A)
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Estimated Opening Total Unrestricted Assets
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D
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E
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F
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G
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If Item C Is Negative
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C
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C
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C
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C
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Estimated Closing Total Unrestricted Assets
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E
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F
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G
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H
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If Item C Is Negative
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C
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C
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C
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C
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Estimated Years Remaining Before Financial Distress
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I
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F/ C
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G/ C
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H/ C
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If Item I is negative and between the range of 0 and – 5, then the college will be in a state of
financial distress.
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If Items C and E are negative then change sign of I to negative, regardless of the I score, the
college will be in a state of deep financial distress.
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References:
¹ Vox. “The big, beautiful bill is bad news for student loans.” May 2025. https://www.vox.com/policy/415793
² Washington Post. “Most Pell Grant recipients to get less money under Trump budget bill, CBO finds.” May 17, 2025.
https://www.washingtonpost.com/education/2025/05/17/pell-grant-cuts-house-budget-bill
³ Investopedia. “Millions of College Students Could Have Their Federal Aid Slashed Under Budget Proposals.” June
2025. https://www.investopedia.com/college-students-could-lose-grants-11752596
⁴ National Association of Student Financial Aid Administrators (NASFAA). “House Budget Proposal Includes Deep Cuts
to Student Aid.” June 2025.
⁵ The Guardian. “Chaos on campuses as schools warn Trump cuts could harm US ‘for decades.’” March 8, 2025. https://www.theguardian.com/us-news/2025/mar/08/trump-universities-higher-education-cuts
⁶ Science Magazine. “NIH indirect cost cuts spark alarm in university research circles.” April 2025.
⁷ Chronicle of Higher Education. “Short-Term Pell Expansion Advances in House with Workforce Focus.” June 2025.
⁸ Inside Higher Ed. “Accountability Provisions Gain Steam in Higher Ed Budget Talks.” May 2025.
⁹ Bloomberg Government. “Congress Revisits ‘Skin in the Game’ Loan Policies for Colleges.” April 2025.
by Michael K. Townsley | Jun 28, 2025 | News 2025
Clark Universities announced on June 3 that they were cutting 30% of their faculty because of a ‘financial challenges and a dramatically reduced incoming [first year] class.” This is a startling turn of events for a university with a strong academic reputation and financial reserves. If Clark feels the pain of the demographic cliff in 2025, which was supposed to be a safe year, then all private colleges, especially tuition-dependent colleges, need to take notice.
Private colleges in states with student markets that are forecast to encounter the full effects of the demographic cliff within the next two years, cannot wait to take action. They need to immediately develop a strategic plan They cannot wait until they are over the side of the demographic cliff because their financial reserves will quickly shrink to zero.
Regrettably, too many private colleges tend to operate within a bubble with their focus only on the current year and the next budget year. The demographic shift will be so calamitous that delay will be a trap as they lose their financial flexibility.
Clark University to lay off up to 30% of faculty, significantly restructure degree tracks amid financial strain | Worcester Business Journal
by Michael K. Townsley | Jun 28, 2025 | Financial Strategy and Operations
Colleges chief financial officers may be facing the greatest budget uncertainty in their lives. Here is a partial list of these uncertainties are:
- Demographic Cliff – student markets will start to shrink dramatically in 2026;
- Pell Grants – could see a potential loss of $1,655 per student;
- SEOG – elimination of this grant;
- College Work Study – large cuts in the grants with the amount undetermined at this time.
- Student Loans – colleges would be partially responsible for students who failed to repay their loan; predicted large growth in the number of defaulters will provide further justification for Congress to approve requiring colleges to partially pay for defaulted balances;
- Indirect Cost –indirect costs from federal grants would be cut to 15% of grants;
Budget Planning Under These Uncertainties
Unfortunately, there is no simple answer to resolve the potential and unknown losses caused by the uncertainties in the preceding list. However, there are several ways to reduce risks flowing from these uncertainties:
- Containing Enrollment Risks by Banding Enrollment
- Budget enrollment forecast should use current enrollment; do not increase enrollment for the budget forecast.
- Compute the standard deviation for enrollment for the prior five years;
- Compute for the prior five years including the current fiscal year; the first and second standard deviation;
- Only use the first and second negative standard deviation to band the current enrollment; this will capture 34% and 49% of the downside;
- Compute the enrollment budget using the current enrollment with the first and second negative standard deviations as lower continent bands;
- Plan enrollment and tuition revenue for all three bands;
- Design contingent expenses for each band;
- As the enrollment picture becomes clearer, move from the lowest band to the current enrollment band.
- If possible, do not increase the tuition discount because enrollment is not increasing for colleges with less than 2,000 students.
- Indirect Cost Risks consider additional endowment draws to support programs supported by federal grants; this will require board approval and if the withdrawals are large, it may require approval by the state of the attorney general’s office.
- Further Downside Protection: during the coming fiscal year, until the college has a better understanding of a) the impact of the demographic cliff and b) the effect of federal action on grants, loans, and indirect costs:
- Freeze Hiring
- Contingent Reduction-in-Force;
- Freezing Discretionary Expenditures;
- Reducing Debt Risk by renegotiating debt subject to interest rates;
- Increasing the liquidity of endowments;
- Constantly monitoring cash reserves.
by Michael K. Townsley | May 10, 2025 | Private Colleges & Universities in Crisis
From: TIPS on Higher Education Leadership
When a college sinks into a deep financial crisis, the president and CFO must find cash quickly, just to make payroll. Next, they must locate larger sums of cash to pay utilities to keep basic operations running and to make debt service payments. If they are unable to find cash for basic operations and debt service, the college’s existence, as with payroll, can immediately imperil its survival. Here are several suggestions on where to find cash. Some sources can be more quickly turned into cash, while others may take longer and may also require legal services to extract money.
Quick Sources:
- Collect unpaid student bills;
- Limit or stop all cash purchases;
- Identify any federal or state money that is owed the college but not collected;
- Sell all college vehicles;
- Eliminate all credit cards, except for emergency use with that card being controlled by the president
- Reduce benefits;
- Cabinet officers should take over daily work of their offices.
- Eliminate all assistants to chief administrative officers;
- Pause all construction and renovation projects;
Longer-Term Sources of Cash:
- Sell or rent unused buildings and open lands;
- Arrange for loans on existing buildings, assuming that they are not collateralized;
- Conduct emergency fund raising campaign among wealthiest donors and alumni.
- Sell academic programs;
- Negotiate with lenders to change the payment schedule;
- Contact the State Department of Education for help in identifying emergency funds.
- Contact state legislatures for help;
- Reduce the number of employees by cancelling programs that do not generate sufficient cash to cover the cash costs of their operation;
- Form operational partnerships with other colleges to cut the cost of IT, academic programs, and athletic events;
- Eliminate athletic teams in which net tuition revenue is insufficient to cover athletic costs;
- Consolidate offices and classrooms;
Check out the Doors to Academia for discussions about major issues in higher education.
This brief will be available on the expanded edition in TIPS on Leadership in Higher Education that is coming out in the Summer of 2025. ↑
by Michael K. Townsley | May 10, 2025 | Private Colleges & Universities in Crisis
From: TIPS on Higher Education Leadership
Here are steps boards and presidents can take to stem a downward slide into a major financial crisis due to a depletion of cash reserves:
- Identify why cash reserves are being depleted;
- Are banks threatening to call loans due to violation of covenants?
- Stop all non-essential cash purchases;
- Freeze hiring, except for critical positions needed for ongoing operations, like the chief financial officer and the head of marketing;
- If the endowment has a balance, contact the Attorney General to request state approval for a substantial loan on the endowment. If possible, use the proceeds to pay off loans carrying large payments;
- List all unused or under-utilized property that can be sold.;
- Consolidate classrooms, faculty, staff, and administration in as few buildings as possible. If the empty buildings cannot be sold, mothball them to save operational and maintenance costs;
- Run a ‘Save the College’ fundraising campaign.;
- Eliminate programs or majors with more faculty than students pursuing a major;
- Design new academic programs to generate larger enrollments;
- Control net tuition by ending contracts for enrollment services that charge a hefty fee, as these services reduce cash produced by new students;
- Put construction contracts on hold;
- Hire an attorney with broad and successful experience in higher education. The attorney is needed to defend the college against lawsuits and to review contracts and changes in corporate documents;
- Identify every source of cash, like uncollected receivables, loose cash stored in files, and expensive automobiles that could be replaced with less expensive vehicles. For example, safety patrol cars could be replaced with golf carts.
This brief will be available on the expanded edition in TIPS on Leadership in Higher Education that is coming out in the Summer of 2025. ↑