New rules, new risks: What educational institutions need to know about recent policy shifts

American educational institutions have often been the barometers of cultural and political movements. During times of significant change, from the American Revolution to the Civil Rights Movement to the Vietnam War, the nation’s campuses have often been the first to react. Similarly, many of the policy changes announced by the new administration are affecting educational institutions first. These impacts fall into two main categories: changes affecting people and changes affecting institutional operations.

The administration’s rollback of diversity, equity and inclusion (DEI) initiatives has eliminated previously protected classifications while a separate executive order has rescinded the federal recognition of gender identity as distinct from sex at birth. These policy shifts are reshaping campus life, admissions, hiring and student support structures.

Institutions, meanwhile, have been navigating financial turbulence. A brief but chaotic freeze on federal funding, coupled with ongoing court battles and potential tax policy shifts, has created an atmosphere of uncertainty. As educational institutions attempt to adapt, they must also prepare for campus unrest, regulatory changes and new challenges to long-standing policies.

People-related impacts

1. Elimination of DEI initiatives

The elimination of DEI initiatives has been one of the most talked-about policy changes in the early days of the Trump administration. Its executive order, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” effectively says all DEI programs are illegal and directs each executive agency and department to submit a report by May 20, 2025, outlining its plan to eliminate them from their organizations and those of non-government entities receiving federal funds.

While the order doesn’t specifically define what is “illegal,” the administration is basing this policy on Title VI, which prohibits discrimination based on race, color and national origin. While prior administrations took a more activist interpretation of that law, using it to create protected classes based on race and ethnicity, the Trump administration is interpreting it much more narrowly, saying it prohibits any special considerations based on race. The administration has established a new website, enddei.ed.gov, to implement these changes. Adding to the complexity, Trump has stated that not all race-based classes are illegal, which has created more confusion about implementation.

As part of its report, each agency or department must include a list of up to nine potentially discriminatory practitioners for compliance investigation. Higher education institutions with endowments over $1 billion and nonprofit organizations with assets of $500 million or more are specifically mentioned, so colleges and universities should prepare for possible investigation.

In a “Dear Colleague” letter issued on February 14, the Department of Education further explained how it intends to enforce the order, and those intentions are broad. The department said the directive applies to “all aspects of student academic and campus life,” from decisions relating to admissions, scholarships and financial aid to hiring, promotion and personnel issues.

Affinity-related clubs, gathering spaces and housing opportunities, which are common on educational campuses, are certainly in question. It may also be illegal for colleges to eliminate the requirement for standardized testing as part of their admissions processes, which many institutions have begun to implement in recent years as a way to increase diversity.

However, the executive order also includes an exemption to protect academic freedom. The order specifically allows for instructors at federally funded institutions to speak out or advocate against the policies set forth in the order.

As of this writing, the legality of this executive order is in legal limbo. Several federal courts have issued temporary restraining orders blocking its enforcement, and the administration has filed appeals. Those restraining orders, which remain in effect until a higher court decides the appeals, allow federal agencies, educational institutions and private-sector recipients of federal grants and contracts to temporarily continue DEI programs without the threat of losing federal funding.

The Trump administration also recently clarified its stance on DEI in K-12 schools. In guidance released in early March 2025, the Department of Education stated that not all diversity programs automatically violate Title VI, noting that “schools with programs focused on interests in particular cultures, heritages and areas of the world would not in and of themselves violate Title VI, assuming they are open to all students regardless of race.” This clarification softens the initially more aggressive stance, though questions remain about implementation and enforcement.

2. Rescission of protections and initiatives for transgender students

Another executive order, “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government,” eliminates recognition of gender identity separate from biological sex. Similar to its policies regarding race, this policy reverses the prior administration’s legal interpretation that gender identity is a protected aspect of a person’s self. This effectively means that people now have a right to refuse to recognize another’s gender identity separate from their biological sex at birth. The federal government is doing this by limiting gender choices on government forms to two options: male and female.

The implications of this policy for educational institutions extend beyond paperwork. Since people can now refuse to share private spaces with people of a different biological sex, institutions may have to rethink recent building renovations to provide gender-neutral bathrooms and locker rooms. While institutions don’t need to remove gender-neutral spaces, they will at least need to provide multiple options — which is just one more costly complication arising from the fact that educational campuses host a mix of people who feel very strongly on both sides of this issue.

When it comes to college sports, the administration also redefined Title IX to specify that transgender women cannot compete on women’s sports teams, and the NCAA echoed that policy change. While transgender athletes are a very small population — according to NCAA, only 10 out of over 500,000 student-athletes identify as transgender — colleges should consider how they will respond if they currently have trans athletes or have any in the future.

3. Preparing for anxiety and unrest on campus

Because educational campuses are places of introspection and intellectual challenge, they have frequently been sites of protest during times of political and cultural upheaval. Institutions’ leadership teams should prepare how they will respond if, and more likely when, protests occur on campus.    

Colleges, universities and K-12 boarding schools also host many international students and faculty members. Even though these individuals are likely here legally under valid visas, they may feel anxious about their status. Under these conditions, frequent communication with international students and employees will be important for the foreseeable future. Institutions might want to reach out proactively to address questions or concerns, and leaders may want to proactively consider how they’ll respond if immigration enforcement shows up on campus.

Operational impacts

1. Federal funding uncertainty

In late January 2025, the Trump administration announced a temporary pause on certain federal payments to ensure funding decisions aligned with new policy priorities. However, this pause was lifted later that same day by a federal judge’s order.

As of March 6, federal grants and loans to educational institutions and students are being disbursed as usual. The pause never applied to programs serving individuals, such as Head Start, student loans and Pell Grants, SNAP nutrition and special education programs, even if those funds are disbursed to institutions rather than students or families. This is particularly significant for special education funding, which has historically fallen short of Congress’s original commitment to provide 40% of costs. Recent analyses indicate districts receive only about 12% from federal sources, with most of the burden (62%) falling on local districts.

But the pause has caused continued confusion and anxiety in the greater education and research community. The National Science Foundation has canceled review panels for research grant applications. In a major development, the Institute of Education Sciences (IES), an independent research arm within the Department of Education responsible for gathering and disseminating data on teaching practices and student achievement, is being significantly cut back. According to reports, numerous contracts have been terminated, affecting research projects that were already underway in classrooms.

Proposed cuts to research grants through the National Institutes of Health, which often go to colleges and universities, could significantly impact research-intensive institutions. In FY23, NIH awarded over $35 billion in grants supporting approximately 50,000 projects at over 2,500 medical schools and other research institutions. Johns Hopkins University received $824 million in NIH funding in 2024, and the University of Pittsburgh receives approximately $700 million annually from the NIH. Some institutions have instituted temporary hiring freezes because of the financial uncertainty.

2. Tax uncertainty

Potential new tax regulations are another source of financial uncertainty for colleges and universities. Congress is currently considering budget bills that include the elimination of individual tax credits and deductions for education expenses, student loan interest and scholarships. A proposed tax increase on university endowments could increase the tax rate on net investment income from the current 1.4% to as much as 14% for private colleges and universities.

3. Decentralization of education policy

The Department of Education has outlined a “final mission” to transfer control of education back to the states to reduce federal oversight. This shift aims to streamline bureaucracy and empower parents, caregivers and local authorities to make educational decisions. While abolishing the Department of Education will require Congressional action, newly confirmed Secretary Linda McMahon supports the goal.

One of the administration’s key policy positions on K-12 education involves the expansion of school choice, possibly by issuing school vouchers to families instead of government block grants to designated schools. If this policy change occurs, public schools are likely to see shifts on the income side of their balance sheets, with some federal funds even going to private schools.

Recommended actions

Institutions must remain flexible, proactive and sensitive to how ongoing changes impact their operations and their people. Here are some specific recommendations:

Operations-related

• Consider private funding: As public funding becomes less certain, explore the possibility of soliciting private donations and setting up partnerships with industry. These moves can help organizations diversify their income sources and maintain financial stability. (Just be sure to keep funding and reporting streams separate.)
• Strengthen partnerships and advocacy: Creating partnerships in the private sector and in state and local governments will strengthen institutions in nonfinancial ways. Sharing information and other resources with organizational peers can provide stability in uncertain times, and each institution gains a louder voice by advocating as a group for important policy changes.
• Keep current on regulatory changes: Besides staying up to date on regulatory news, leaders should also stay in touch with their advisory contacts. Seek timely legal and financial advice to help ensure compliance and optimize operations.
• Reflect on mission and risk tolerance: Many of these policy and regulatory changes call for educational institutions to adjust their missions. In some cases, complying with a new policy may create a conflict. It’s important to consider how an intended or potential policy change may affect the organization — even if the implementation is currently paused — and have discussions early on with a broad set of stakeholders. If a policy conflicts with your mission, consider risk tolerance and ask for legal, financial and reputational advice. Then review all programs, policies and communications and make sure they align with those decisions.

People-related

• Create a change story: A change story can be a powerful tool for mitigating challenges associated with rapid changes. By clearly communicating the reasons for change, the benefits it will bring and the steps involved, leaders can build trust and buy-in from stakeholders. This narrative helps align everyone toward a common goal.
• Build a culture of resilience: Resilient institutions adapt to new challenges, maintain stability and continue to provide quality education. Building resilience involves fostering a positive organizational culture, encouraging innovation and developing robust contingency plans. By prioritizing resilience, institutions can better navigate the complexities of the current environment and emerge stronger.
• Communicate with the head and the heart: Effective communication during times of change addresses both rational and emotional concerns. By balancing data-driven, logical communications with empathetic stories, educational leaders can foster a supportive and motivated community that is ready to embrace change. This holistic communication strategy is essential for maintaining morale and ensuring the successful implementation of new initiatives.

How Wipfli can help

Wipfli is here to support educational institutions through strategic planning, financial audits, tax optimization and technology integration. We understand the unique challenges faced by educational institutions and provide tailored solutions to help you achieve your goals. Whether it’s navigating new tax regulations, enhancing cybersecurity or improving operational efficiency, Wipfli is committed to empowering educational institutions to thrive. For more information, visit our education industry page or check out additional insights here.