Most Legislation Doesn’t Support Higher Education

State and federal government legislation isn’t helping higher education. Between unfunded mandates, taxing endowments and shifting (and decreasing) funding, legislation has been making it harder and harder for institutions to stay afloat, serve the public, keep costs down for students and their families, and participate in workforce development. Government should be supporting, not hindering higher education.

Thank Unfunded Mandates for Administrative Bloat

Most people don’t know that colleges and universities bear the financial burden of federal and state mandates and laws affecting its bottom line. If the government doesn’t provide support, who pays for implementation and compliance of mandates? Colleges and universities have only limited revenue sources: tuition, room and board. The expenses for unfunded mandates and laws are borne by the increasing costs for students and their families.

Compliance-related expenses include personnel, systems, notifications, infrastructure, annual reports, related educational programming and training. While these mandates have significant benefits for the public good, not funding them has serious consequences for an institution’s budget. In 2015, Vanderbilt University conducted a study on the cost to remain in compliance with federal regulations and determined the estimated cost in 2013–14 was $27 billion per year, or between 3 percent and 11 percent of an institution’s operating expenditures. People criticize higher ed and the number of administrative staff, but if they knew more about unfunded mandates, they likely would not question why there are so many administrators and they would insist the government pay for mandates.

Some of the major federal unfunded mandates include:

• Americans With Disabilities Act (1990)
• Americans With Disabilities Digital Accessibility Rule (2024)
• Jeanne Clery Disclosure of Campus Security and Campus Crime Statistics Act (1990)
• Drug-Free Schools and Communities Act (1989)
• Drug-Free Workplace Act (1988)
• Family Educational Rights and Privacy Act (1974)
• Student Tuition and Transparency System (STATS) and Earnings Accountability (proposed)
• Health Insurance Portability and Accountability Act (1996)
• Higher Education Act (1965) Title IV and Title IX (1972)
• Rehabilitation Act Section 504 (1973)
• Campus Sexual Violence Elimination Act (2013)
• Compliance regulations relating to procurement, reporting and financial management of federal allocations and grants

Types of state unfunded mandates for public (and some private) institutions and example states:

• Campus safety and firearms (Texas: Senate Bill 11, 2015).
• DEI and affirmative action (Florida, Texas and others: restrictions, program review and restructuring)
• Free speech and campus expression (Florida: Campus Free Expression Act of 2021; Texas: Senate Bill 18 of 2019; Georgia, North Carolina, Virginia and approximately other 20 states with legislation based upon the “Chicago principles” model).
• Mental health services mandates (Virginia: House Bill 1987 of 2022; others, such as California, New York and Illinois)
• Reporting and accountability (California, Texas and Florida: detailed performance metric reporting; many other states: performance reports, graduate earnings, disclosures and low-completion-rate reports)

• Tuition transparency and affordability (Ohio: tuition freeze periods; Georgia: in-state tuition rate constraints; Wisconsin and others)
• Workforce and curriculum (Florida, Texas, Tennessee: mandating or restriction of academic content; many states: specific general education requirements, e.g., financial literacy, American history, civics)
• Pay raises for state employees (most states require institutions to raise salaries according to legislatively approved percentages, which is sometimes paid by the institutions and not through appropriations)
• Compliance regulations relating to procurement, reporting and financial management of state allocations and grants

The Counterintuitive Logic (aka Stupidity) of Taxing Endowments

Through the One Big Beautiful Bill Act signed into law in 2025, the U.S. government taxes institutional endowments. A part of the rationale for this action is to encourage institutions to use more of their resources to reduce tuition. This action is irrational when one understands how endowments work and what endowment funds are already used to support: mainly, scholarships. The idea that having a sizable endowment means an institution has a great deal of budgetary flexibility is a misconception. Institutional endowments (the large total often referred to) are comprised of smaller individual endowments. Endowments are created through charitable gifts from donors for the explicit purpose of investing funds in perpetuity. A legally binding agreement between the institution and the donor establishes the terms. (See article explaining endowments here.)

In accepting the funds for an endowment, the institution agrees to:

• Never spend the amount given for the purpose of investing (the “corpus”),
• Invest the funds in accordance with the institution’s investment policies,
• Only spend a certain percentage of the annual earnings shaped by state laws, donor restrictions and institutional policies (typically 3 to 6 percent),
• Reinvest the earnings over and above the allowable spend to grow the corpus (and hopefully keep pace or exceed CPI; the recent 10-year average return was 7.7 percent), and
• If the investment loses money and the endowment becomes less than the original corpus (known as being “under water”), no funds are disbursed until the endowment corpus is restored (or “above water”).

One shouldn’t assume an institution doesn’t need resources because of a large endowment, or that it has latitude in how it uses endowment revenue. A donor can give any amount to the institution’s general endowment funds without restriction, but very few do. Many donors wish to establish a fund with a specific name and/or purpose. It is somewhat rare for a donor to make a gift to the endowment without other restrictions.

According to a joint study of endowments by the National Association of College and University Business Officers and Commonfund published in February, approximately 80 percent of institutional endowments are donor-restricted, meaning donors have legally designated the funds for specific purposes as a condition of the gift. Institutions cannot redirect funds without donor consent or court approval.

The majority (nearly 48 percent) of restricted funds were allocated to scholarships and financial aid. The next-largest portion supports academic programs, followed by salary support, then research, athletics and student life. This information debunks the notion that endowments can offset operating expenses to a great extent.

In 2024, the American Council on Education published “Understanding College and University Endowments,” which explains, “While public attention focuses primarily on the relatively small number of colleges and universities with large endowments, most colleges and universities have only modest endowments or none at all. Data from the National Center for Education Statistics (NCES) show that by the end of FY 2022, 61 percent of private nonprofit four-year colleges and universities and 56 percent of public four-year institutions either had endowments of less than $50 million or reported having no endowment. Additionally, 36 percent of private institutions and 24 percent of public institutions had endowments of less than $10 million or did not have an endowment.”

Not Enough Government Support for Students, Families

Consider these facts assembled from NCES’s Fast Facts: Student Debt and the College Board’s 2024 report “Trends in College Pricing and Student Aid.” In 2024–25, an estimated $173.7 billion in total student aid (grants, loans, work-study and tax benefits) was awarded to undergraduate and graduate students. Of that total, 31 percent came from federal grants and a substantial portion from federal loans. Federal student loans represent approximately 90.9 percent of all outstanding student loan debt.

In addition, NCES states the following: The average federal loan award to first-time, full-time undergraduates who received loans was approximately $7,700 in 2020–21 (in constant 2021–22 dollars), down 8 percent from $8,400 in 2010–11. The maximum Pell Grant for 2024–25: $7,395, covering approximately 28 to 30 percent of in-state tuition at public four-year institutions.

Analysis of College Board and NCES data further shows federal loan limits have not kept pace with either CPI or tuition inflation. The annual unsubsidized Stafford loan limit for dependent undergraduates has been $5,500 to 7,500 since 2008–09; adjusting for CPI information alone, those limits would need to be $7,800 to $10,700 to maintain equivalent purchasing power.

The Pell Grant maximum increased from $5,550 in 2010–11 to $7,395 in 2024–25, a nominal 33 percent increase; the CPI rose 45 percent over the same period, meaning the Pell Grant lost purchasing power in real terms. However, net tuition (after grants and aid) declined in inflation-adjusted terms at many institutions in recent years, meaning the effective aid burden on students has been partially mitigated by institutional and state grant agencies.

Federal support has shifted away from direct institutional support to student aid and research grants over the last 50 years. Direct federal aid to institutions (general revenue sharing, land-grant supplements, etc.) has largely been eliminated since the 1980s. The federal government shifted from direct institutional grants to student-centered aid—Pell Grants and federal loans—beginning in the 1970s. Federal research and development funding to higher education grew in absolute terms but declined as a share of gross domestic product. When federal R&D was at its peak, in 1964, it accounted for 1.86 percent of GDP; by 2021, it had fallen to 0.66 percent of GDP. On a per-student, inflation-adjusted basis, federal direct support as a share of higher education’s total costs has declined substantially since the 1970s.

According to NACUBO’s Feb. 2, 2025, 2025 Federal Outlook for Higher Education, other legislative and regulatory threats exist and will have serious financial consequences for colleges and universities. In addition to taxing endowments, these include eliminating tax-exempt bond financing, repealing charitable contribution deductions, taxing scholarship and fellowship income, and cutting student loan benefits and education tax credits.

The 2025 Federal Outlook report states, “These proposals are part of the broader budget reconciliation efforts, where lawmakers are seeking offsets to help fund the extension of tax cuts and other federal priorities. If enacted, they would increase financial burdens on students and institutions, limit support for research and weaken higher education’s ability to serve its missions.”