How Trump's Policies Could Affect Higher Ed Finances More Than Covid

Forbes

18-05-2025

A combination of policies by the Trump administration could ultimately result in greater financial ... More woes for higher education than those caused by the Covid-19 pandemic.
The Covid-19 pandemic's effects on higher education caused unprecedented financial setbacks for America's colleges and universities. Institutions lost billions of dollars in revenue, most of them were forced to enact large budget cuts, furlough or lay off staff and faculty, and shutter academic programs. Several were forced to the brink of closure or over it.
As bad as the financial fallout might have been — some estimates place the cumulative lost revenue at more than $100 billion, a number that doesn't account for the increased expenses institutions incurred — here are six reasons why the eventual impact of Trump administration policies could eventually bring about even bigger financial hardships for the sector than those caused by the pandemic.
Time alone may contribute to larger financial consequences. While most of the Covid-19 pandemic occurred from March, 2020 to May, 2023, the worst of its effects on college enrollments and funding were felt for about two years.
According to the National Student Clearinghouse Research Center, total enrollment at degree-granting institutions decreased between 2019 and 2022 by about 1.11 million students. But colleges were seeing a modest bounce back in new freshmen as soon as fall, 2022, and those gains have continued, so that by fall of 2024 total college enrollment stood at more than 19 million students, about .5% above pre-pandemic levels.
By contrast, the policies being championed by President Trump administration are likely to exert their effects for the four years of his administration, and those that become enshrined in federal statutes or new regulations could exert a downward influence on college budgets for years to come. Those changes will coincide with years of decreasing numbers of high school gradates, the largest source of new college enrollments.
The financial consequences of the pandemic would have been much greater had it not been for the bail out given to colleges by both the first Trump administration and then by President Joe Biden. Those funds, provided through three rounds of Higher Education Emergency Relief Funds, totaled almost $77 billion.
Half of that money went to students directly, helping millions of them stay enrolled in college. Institutions were able to use the remaining funds to help pay for additional expenses and cover some of their lost revenue.
That support was crucial for most colleges to weather the pandemic's financial storm, but it's almost gone now. And unlike during the pandemic, there's no indication that the administration has any interest in throwing a financial lifeline to help struggling institutions keep their heads above water. In fact, it appears federal officials are now inclined to find new ways to punish institutions financially rather than rescue them.
Congressional Republicans have proposed increased or new taxes on several sources of university income as part of President Trump's 'big beautiful bill,' a comprehensive legislative package containing the president's preferred tax proposals and spending cuts.
As part of that plan, the tax on the endowment earnings of the nation's richest colleges would be hiked from 1.4% to as much as 21%. Currently, a few dozen private universities with at least 500 full-time equivalent students and an endowment worth at least $500,000 per student are subject to a 1.4% tax on endowment earnings.
But under the new proposal, the increases would be tiered. Schools with a per-student endowment between $500,000 and $750,000 would still pay the 1.4% rate. Those with a per-student endowment between $750,000 and $1.25 million would pay a 7% tax on investment income, while those with endowments worth between $1.25 million and $2 million per-student would be taxed at 14%. Institutions whose endowments-per-student are at least $2 million would have to pay a 21% tax rate.
The bill also calls for a change in how the number of students is calculated. By excluding foreign and undocumented students from the count, it would increase both the number of universities subject to endowment taxes and the number who would have to pay a larger rate.
Finally, the bill proposes to treat the royalty revenue that a university receives from licensing its name and logo as unrelated business income, thereby making it newly subject to federal taxes.
Billions of dollars in federal research grants and contracts, particularly at leading universities, have been frozen, blocked or cut by the Trump administration. As one example, the number of new grants awarded by the National Science Foundation has decreased by almost 50% since Trump has been president, according to an analysis reported by ScienceInsider. The decrease equates to a decline in awards of more than $400 million.
The president's 'skinny budget' plan would slash billions more in future federal research funding. The National Institutes of Health's funding would be cut by $18 million, reducing it from $45 billion to $27 billion. The National Science Foundation would lose $4.9 billion, more than half of its current $9 billion budget.
Billions more in research support would be eliminated at other federal agencies. For example, the Department of Energy would take a $1.1 billion hit to its science budget. At the Department of the Interior, the U.S. Geological Survey would see a reduction of $564 million.
The research cuts and Trump's proposal for future reductions in discretionary spending fall hardest on major research universities, but that's not a small number. More than 130 colleges and universities received at least $100 million in federal research and development funding in Fiscal Year 2023, and more than 170 received at least $50 million.
Some economists are now predicting that the Trump administration's wide-spread funding reductions for scientific research could result in economic losses comparable to the decline in gross domestic product during the Great Recession of 2009.
A new study by a team of economists at American University's Institute for Macroeconomic and Policy Analysis quantified the economic fallout from different sizes of budget cuts to federal agencies that fund non-defense scientific R&D, including NIH, NSF, the Department of Energy, and the National Aeronautics and Space Administration.
The researchers modeled cuts of 25%, 50% and 75% and then compared the long-run effects of those cuts against a baseline where each agency's spending remained equal to its federal budget share between 2010 and 2019. They found that:
Reductions in public R&D would also decrease the economy's tax base, resulting in lower overall federal government revenues. A 25% cut in public R&D was estimated to reduce annual federal revenue by 4.3%, while a cut of 75% would lower it by nearly 13%.
Finally, one of the largest and most widespread hits to higher education funding could come as a result of the massive cuts in federal support for Medicaid now under consideration by Congress. The size of those reductions has not been finalized, but it's likely to exceed $600 billion, putting added pressure on state budgets.
Medicaid, through which millions of low-income Americans and those with certain disabilities receive health insurance, is funded through a partnership between the states and the federal government. Large cuts to the federal Medicaid match will almost certainly exert, as various higher education associations have noted, 'a significant strain on state budgets, forcing state governments to make difficult and harmful funding decisions.'
States would need to choose between reducing health benefits or increasing their investments in the program, thereby reducing appropriations for other priorities, such as higher education.
The evidence on this score, summarized by former university president F. King Alexander and colleagues, is clear. According to their recent study in the Journal of Education Finance, state higher education spending exceeded Medicaid spending by 33.7% in 1991. Thirty years later, by 2021, state Medicaid spending exceeded public higher education spending by 83%. The reason is simple — when states are forced to increase Medicaid spending, higher education is often the first area targeted for offsetting reductions.
If the pandemic had any silver lining for higher education it was that college leaders learned essential lessons for how to manage austerity, financial uncertainty and disruptions to business as usual. Those lessons are now going to be put to a sterner test because of the sweeping nature of the policy changes along with the volume of the funding cuts pursued by the Trump administration.
'The impact of the pandemic on higher education's finances ended up being rather small due to timely federal support and largely avoiding a recession,' according to higher education finance expert Robert Kelchen, professor and head of the Department of Educational Leadership and Policy Studies at the University of Tennessee. 'This time around, the federal government is the cause of the financial shock. So far, only the biggest research universities have been affected by the Trump administration's actions, but that will change in a big way if state budgets are affected.'
No wonder Moody's Rating recently downgraded its 2025 outlook for the higher education sector from stable to negative. While downgrades are nothing new, Moody's cited six factors — an unusually large number, with all of them related in one way or the other to Trump policies — for its pessimistic forecast. Higher education's new financial crisis has begun, and it may last a long time.