Why Colleges Need Federal Funding—and What Happens When It Stops

Federal funding plays a critical role in supporting colleges and universities across the country. Many schools rely on federal funding for student aid as well as for research and development. A reduction or elimination of federal funding can have devastating effects on the college or university in question.

The Role of Federal Funding in Higher Education

In the United States, education is predominantly the responsibility of state and local governments, which includes contributing the majority of education funding. However, while the U.S. Department of Education is prohibited from mandating curriculum, it can still provide additional financial support at all school levels.

The Department of Education funds K–12 programs that help economically disadvantaged schools. These include Title I, special education programs, and school improvement programs.

The department supports colleges and universities through Pell Grants, which provide funds to financially disadvantaged students; federal student loans, which typically offer more generous terms than their private counterparts; work-study opportunities; and funding for research and development.

Implications of Losing Federal Funding

Any loss of federal funding can have severe consequences for schools, students, scientific research, and local economies. Colleges and universities that have their federal funding cut may be forced to raise tuition rates, reduce or delay access to financial aid, and/or lay off staff.

Additionally, not only does freezing research grants halt potential advancements in crucial fields, but it also makes related careers less viable. Some universities have accepted fewer graduate students amid pathways to career-building projects and graduate programs being cut off.

According to an analysis from the Associated Press, nearly 100 colleges and universities were under investigation by the Trump administration for programs that it alleged were illegally promoting diversity, equity, and inclusion or failing to combat purported antisemitism at student protests against Israel’s war in Gaza.

Those schools, which include Ivy League institutions like Columbia University, collectively received over $33 billion in federal funding in the 2022–2023 academic year, not including what was provided for federal student aid. Of particular note is that $400 million worth of federal research funding for Columbia University was canceled, which has yet to be restored despite the school largely acquiescing to the administration’s demands for reinstating it. Nearly 180 Columbia staff members were laid off on May 6 as a result of the ongoing funding freeze.

The Bottom Line

The federal government has played a key role in ensuring U.S. colleges and universities have adequate funding to support students as well as critical research. However, when federal funding is reduced or eliminated, schools may have to cut vital programs, staff, and student services.