Higher Education Market Trends Q2 2025

The first quarter of 2025 will likely be written into history as one of the most chaotic and disruptive periods the U.S. Higher Education market has ever witnessed.

Reductions in federal grants, proposed changes to endowment taxation, increased tariffs on materials, policy reversals related to diversity, equity, and inclusion (DEI), and moves to eliminate the Department of Education are but a few headlines dominating a tumultuous start to the year. The culmination of issues has resulted in a chaotic atmosphere wrapped in a prickly blanket of uncertainty – creating unique challenges for universities trying to navigate their capital investment and critical research strategies.

Federal Grant Reductions

Funding reductions to programs like Federal Work-Study and Supplemental Educational Opportunity Grants (SEOG), National Endowment for the Humanities (NEH), Autism Research, National Science Foundation (NSF) and NASA have created an unprecedented disruption in the Higher Education community. Proposed cuts to indirect cost (IDC) reimbursements for NIH research grants have severely impacted research-intensive universities, stalling PhD and Principal Investigator renewals and pausing critical research. Due to all the uncertainty, some construction of new laboratories, tech-enabled classrooms, student centers, and DEI mission related facilities have paused or been canceled. Several lawsuits have been filed to reverse mandates. Some institutions are diverting resources from long-term investments to meet immediate operational needs. As a result, delays, scope reductions, and even cancellations of construction projects are occurring.

Tariffs on Construction Materials

Increased tariffs on imported steel, aluminum, gypsum and imported lumber will impact the cost of university construction projects—and the price increases will hit large-scale developments the hardest, particularly those involving lab facilities, student housing, and athletics infrastructure. Institutions are re-evaluating designs, considering value engineering, or turning to phased construction approaches to manage potential escalations. Q2-Q3 will be particularly important, with facility leaders watching closely to see where the myriad of specific trade deals land. In the meantime, uncertainty will reign supreme thwarting informed planning processes.

Endowment Tax Proposals

Congressional proposals to significantly expand and increase the excise tax on university endowments are another point of stress. The Endowment Accountability Act, introduced in early 2025, would raise the tax rate from 1.4% to 10% and lower the qualifying per-student endowment threshold from $500,000 to $200,000 pulling many more institutions—especially elite private colleges—into the tax’s reach. As endowment earnings are often earmarked for infrastructure improvements they threaten to erode key funding sources for capital projects. Institutions are already reevaluating building plans in anticipation of diminished financial flexibility.

DEI Policy Changes

In response to federal pressure, many universities are reworking or downsizing their DEI-related programs. The Department of Education and other federal agencies have issued new guidance linking DEI compliance with federal funding eligibility, leading to the withdrawal or reallocation of funds at non-compliant institutions. For example, Harvard University faced a freeze of approximately $2.3 billion in federal funding due to perceived DEI policy violations. These developments not only affect university operating budgets but also influence planning for future campus spaces—such as multicultural centers and inclusive housing—that were designed to support equity and access.

Organizing and Responding

More than 150 college and university presidents recently signed a statement published by the American Association of Colleges and Universities challenging the “government overreach and political interference”. Several members of the Big Ten Academic Alliance have established a “mutual defense compact”. Three major lawsuits challenging the NIH’s cap on indirect research cost reimbursements have been filed by 22 state attorneys general, 13 universities, and the Association of American Medical Colleges, arguing the cap is unlawful and threatens essential research. Efforts are having some impacts, and a federal judge issued a nationwide injunction halting the policy which DHS has appealed to the U.S. Court of Appeals for the First Circuit. Separately, Harvard is suing the federal government over frozen funding and tax-exempt status threats, while states are challenging efforts to dismantle the Department of Education and cut teacher grant programs. All eyes are watching, as the results of the court’s decisions will have major implications.

Final Thoughts

The higher education market is facing a perfect storm of challenges: financial aid cuts, rising materials costs due to tariffs, the threat of punitive endowment taxes, policy shifts around DEI all on the heels of the enrollment cliff and COVID. The cumulative effect of these forces is an environment of lingering uncertainty creating some pauses in campus development activity. During the pause however, some are pivoting toward renovation, maintenance, and cost containment projects. Forward-thinking universities are seeking new models of funding—such as public-private partnerships and new donor campaigns. Still, the road ahead remains fraught with financial and political uncertainty, demanding agility and strategic foresight across the sector. Strap in tight it’s going to be a bumpy ride.