October 24th, 2025

By: Keegan Ferguson, Franck Djoumessi and Ishika Gupta, Financial Services Team

• On October 1st, the White House issued a “compact” to select universities—a contract that promises institutions preferential treatment in funding in return for their revamping admissions, hiring, and free-speech policies. President Trump subsequently appeared to widen the offer to all universities. Institutions have approached the compact cautiously—as of this writing, none have signed on, while four have rejected it. We do not believe the administration has the legal authority to impact core Title IV funding without legislation.
• We believe major education funding streams, such as IDEA and Title I, will remain stable for FY 2026 thanks to bipartisan Senate support. Both the White House and the House Appropriations Committee have proposed spending cuts, but we do not expect the Senate to approve a reduction in a key federal education funding stream.
• On October 10th, 466 Department of Education employees were subject to a Reduction in Force (RIF), including the majority of the Office of Special Education and Rehabilitative Services. On October 15th, a federal judge issued a temporary restraining order (TRO) blocking the department from implementing the October RIF notices. We expect IDEA funding to continue even if the RIF proceeds.
• A proposed Department of Homeland Security (DHS) rule aims to impose fixed terms of admission for international students, capping enrollment at four years. The rule would complicate their ability to complete academic programs without extension and likely depress international enrollment, negatively impacting universities’ finances.
• The imposition of a $100,000 fee on H-1B visas has the potential to financially burden school districts and the higher education sector, which use the program to fill teaching and research roles. Capstone expects that legal challenges to the fee will prevail, limiting any potential harm.

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Policy Analysis

One Key Thing

White House Unveils Compact for Academic Excellence in Higher Education

On October 1st, the White House announced the Compact for Academic Excellence in Higher Education. This 10-point deal proposal outlines key policies the Trump administration has sought to impose on colleges in exchange for funding advantages in federal research grants.

The institutions the compact addresses include Vanderbilt University, Dartmouth College, the University of Pennsylvania (UPenn), the University of Southern California (USC), the Massachusetts Institute of Technology (MIT), the University of Texas at Austin (UT), the University of Arizona, Brown University, and the University of Virginia (UVA).

To access preferential funding, signatory universities must be faithful to the administration’s various provisions, including capping international student enrollment to 15% of the institution’s undergraduate student body (with no more than 5% from one country), tuition freezes for US students for five years, institutional neutrality that limits university employees from actions or speech relating to societal and political events, and standardized testing requirements for admissions. Recipients of the letter have until October 20th to provide written comments and must issue their decisions to the White House by November 21, 2025.

Since taking office in January 2025, the Trump administration has sought to aggressively leverage federal funding to shape policy changes at elite institutions. It has had varying degrees of success.

In July 2025, the administration reached settlements with UPenn, Columbia University, and Brown over alleged Title IX violations and investigations into antisemitism. UPenn reached an agreement over Title IX compliance, which freed up $175 million in federal funding that the federal government had withheld. Columbia agreed to pay $221 million to the federal government to resolve investigations into antisemitism and restore access to $1.3 billion in federal funding. Brown agreed to pay $50 million over 10 years to Rhode Island workforce organizations to restore federal research grants and end investigations into antisemitism and racial bias in admissions.

Harvard University became the first institution to successfully resist the administration’s demands to limit activism on its campuses. In September 2025, Judge Allison Burroughs of the US District Court for the District of Massachusetts ruled in Harvard’s favor after the administration froze over $2.6 billion in research grant funding after the institution refused to comply with demands to overhaul admissions and disciplinary policies. Judge Burroughs concluded that the administration’s freeze orders were unconstitutional and failed to comply with Title VI of the 1964 Civil Rights Act, which requires agencies to undergo a structured hearing and notice process before terminating federal financial assistance due to civil rights violations.

The compact, as it is written, does not explain the statutes or other reasons under which the administration can grant preferential access to federal programs, which likely suggests limited authority to reduce funding for non-signatory universities. Specifically, Title IV programs are statutorily authorized under the Higher Education Act (HEA) and require institutions to meet specific eligibility and participation requirements. We believe that any attempt by the Trump administration to unilaterally withdraw Title IV eligibility without a legal basis would face immediate court challenge, given that the Harvard ruling established that funding cannot be conditioned on universities accepting ideology-based reforms.

The compact has attracted widespread opposition from Democratic state lawmakers, student groups, and students.

In Pennsylvania, two Democratic representatives introduced the “Protect Pennsylvania’s Academic Freedom Act” in the state House to prohibit institutions that receive state funding from signing onto the compact. In California, Governor Gavin Newsom (D) threatened to cut off billions in state funding to universities, saying, “If any California university signs this radical agreement, they’ll lose billions in state funding—including Cal Grants—instantly.” In Virginia, three Democratic state Senators urged officials at UVA to reject the compact to avoid “significant consequences in future Virginia budget cycles.”

While state lawmakers will likely influence university decisions, we expect the extent of that influence to differ between public and private institutions due to constitutional protections.

On October 10, 2025, MIT became the first institution to formally reject the compact, citing the proposal’s inconsistency with the university’s values and core principles. In her letter to the White House, university President Sally Kornbluth pointed to existing MIT policies that meet or exceed the compact’s demands, including the 10% cap on international enrollment of its undergraduate population, tuition waivers for students from families earning under $200,000, and its reinstatement of SAT/ACT testing requirements after the COVID-19 pandemic.

On October 15th, Brown University President Christina H. Paxson declined the White House’s invitation for the university to join the compact. Despite the compact’s similarities to the voluntary resolution agreement the university reached with the federal government on July 30th, Paxson believes the proposal would “restrict academic freedom and undermine the autonomy of Brown’s governance.” A day later, UPenn and USC became the third and fourth universities to reject the compact, highlighting mounting opposition to the deal among non-state institutions.

Although other institutions have yet to publicly issue their stances on the proposal, the faculty Senates at both UVA and the University of Arizona have voted to oppose the compact, urging university leadership to reject the White House proposal. As other schools continue to weigh the administration’s demands, we expect interest in signing the compact to be drawn along state political lines, as education leadership in more conservative states, such as Texas, could lead to its adoption.

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The Month in Review

Despite the House’s Proposed Cuts to FY2026 K-12 funding, Title I, IDEA Likely to Remain Stable

Despite the government shutdown, key K-12 funding streams remain stable due to forward funding of flagship federal education programs. Title I, various formula grants under the Elementary and Secondary Education Act (ESEA), and the IDEA were made available to school districts on July 1 and are therefore unaffected by the shutdown. When appropriations conversations are begun again in earnest, we expect Congress will ultimately flat-fund Title I and IDEA programs for FY2026.

Unlike the FY2026 Senate Appropriations Bill, which largely rejected President Trump’s proposed cuts to K-12 funding, the FY2026 House Appropriations Bill aims to cut Title I-A funding by $3.6 billion in the next fiscal year. Moreover, the House bill seeks to eliminate Title III funding for English Language Acquisition programs, while also imposing cuts on several other ESEA initiatives, including teacher training programs, the Promise Neighborhood program, and Full-Service Community Schools.

As the appropriations process unfolds, Capstone believes the House Bill is unlikely to become law due to bipartisan support for Title I and ESEA programs in the Senate. In the past several years, the Republican-controlled House has routinely proposed cuts to Title I that were not enacted. Instead, we expect that the Senate’s vision for FY 2026 K-12 appropriations, which would modestly increase funding for Title I and IDEA, is more likely to be reflected in a future appropriations bill. While the combination of stimulus funding expiration and political machinations around federal funding has delayed sales cycles for K-12 vendors, we believe key federal funding streams are stable. We believe that eventual stability in federal funding will relieve some district concerns about funding availability—a positive for curriculum, assessment, and other vendors in the sector, such as McGraw Hill.

Table 1: Funding Allocations for Key Education Programs in the FY2026 President’s Budget Request, House, and Senate Appropriations Bills

Program	President’s Budget	Senate Bill	House Bill
Grants to LEAs (ESEA 1-A)	$18.407B	$18.457B	$14.626B
Supporting Effective Instruction State Grants (ESEA II-A)	$0	$2.190B	$1.681B
Comprehensive Literacy Development Grants (ESEA II B-2, Section 2222)	$0	$194M	$194M
Innovative Approaches to Literacy (ESEA II B-2, Section 2226)	$30M	$30M	$30M
Language Instruction for English Learners and Immigrant Students (ESEA III-A)	$0	$890M	$0
Student Support and Academic Enrichment Grants (ESEA IV-A)	$0	$1.380B	$1.385B
21st Century Community Learning Centers (ESEA IV-B)	$0	$1.330B	$1.330B
Impact Aid (ESEA VII) – Payments for federally connected children, facilities maintenance, construction, and payments for federal property	$1.625B	$1.625B	$1.630B
Special Education Grants to States (IDEA B-611)	$14.891B	$14.264B	$14.239B

Note: President Trump recommended the consolidation of ESEA II-A, II-B-2, IV-A, and IV-B Funding with other K-12 programs to create a single $2 billion “K-12 Simplified Funding Program,” cutting K-12 funding by ~$4.5 billion.

Source: FY2026 Senate and House Labor HHS Education Appropriations Bills, School State Finance

Note: President Trump recommended the consolidation of ESEA II-A, II-B-2, IV-A, and IV-B Funding with other K-12 programs to create a single $2 billion “K-12 Simplified Funding Program,” cutting K-12 funding by ~$4.5 billion.

Source: FY2026 Senate and House Labor HHS Education Appropriations Bills, School State Finance

The Senate Appropriations bill also included measures to safeguard the Department of Education (ED) from the administration’s downsizing efforts, barring the transfer of “significant” Title I and IDEA responsibilities to other departments, and requiring that the ED maintain the needed staffing levels to fulfill its statutory responsibilities. However, the House Bill does not include any such language, and we expect such binding obligations to be excluded from a future appropriations bill.

OMB RIF Impacts ED Office of Special Education, Though IDEA Funding Remains Stable

On October 10th, the Office of Management and Budget (OMB) confirmed that 466 employees in the Education Department were subject to a Reduction in Force (RIF). This represents around 20% of the Department’s remaining workforce, leaving the agency with about 48% of the staff it had at the beginning of the year, after the US Supreme Court permitted the first round of RIFs in March.

On September 30th, government labor unions preemptively challenged the October RIF in district court, and on October 15th, a federal judge issued a temporary restraining order blocking the department from “taking further action to administer or implement any RIF notices already issued beginning on October 10.” A hearing on October 28th will determine whether the block on the RIF will remain in place during litigation. If the judge rules in favor of the plaintiffs, we expect OMB to appeal.

OMB argued that in the event of a shutdown, agencies may use the lapse in appropriations as an “opportunity to consider Reduction in Force notices for employees.” Consistent with the Trump administration’s goal of dismantling ED, it appears as though this RIF is intended to be permanent despite the temporary nature of the shutdown. Moreover, the RIF reportedly includes almost every staff member in the Office of Special Education Programs (OSEP), which supports the implementation of IDEA funding, and a large portion of the employees in the Office of Elementary and Secondary Education, who are responsible for administering various formula programs, including Title I, as well as other grant programs.

Disability advocates are concerned the RIF will reduce OSEP’s ability to fulfill its statutory obligations, implement IDEA, and support special education services across the country. Any failure by ED to fulfill its statutory duties is likely to face legal challenges. While the RIF may lead to concerns about the availability of IDEA and Title I funding, we continue to believe these funding streams will remain stable. ED’s shutdown contingency plan explicitly states that Title I and IDEA grant funding will be made available to states as usual. At most, we may see administrative delays in smaller grant programs due to the reduced staffing levels at the department. Though the administrative capacity to support IDEA and Title I funding will be restricted if the October RIFs are eventually permitted, the funding streams are authorized and appropriated in Congress by statute and cannot be reduced unilaterally by ED.

Administration imposes $100,000 fee on H-1B Visas; would modestly impact IHE and K-12 hiring

On September 19th, the White House announced the imposition of a $100,000 fee on H-1B visas, to be paid by the sponsoring employer. Beginning September 21st, companies must provide concrete documentation proving that the $100,000 payment has been made before submitting an H-1B visa petition for their employee. The new rule will not affect those who had a H-1B visa before September 21st, or those seeking to renew their current visa. In response, a coalition of unions, employers, and higher education groups filed a lawsuit against the Trump administration on October 3rd. The $100,000 fee is significantly higher than the previous cost of $5,000 to $10,000 per visa, though the American Immigration Council (AIC) estimates those costs to be lower, between $2,000 and $5,000. The new fee has the potential to complicate universities’ ability to fill research roles and school districts’ ability to use foreign teachers to address labor shortages.

With the implementation of this policy, the administration aims to disincentivize large companies from using the H-1B visa program, which it argues is “abused,” to avoid the higher cost of hiring American workers. In the White House proclamation, the administration specifically points out that “information technology (IT) firms in particular have prominently manipulated the H-1B system,” leading to higher unemployment rates for American graduates seeking to enter the field. While tech firms may be the intended target for the new fee, schools and universities that rely on H1-B employees are likely to experience a labor squeeze resulting from the high fees.

Although universities are exempt from the annual cap on H-1B visas, there is no indication that they will be exempt from the $100,000 fee. A fee of that magnitude is generally viewed as unaffordable across higher education, which will force universities to turn elsewhere to fill positions or leave roles empty. Any attempt to comply with the directive would impose significant financial burdens on universities already strained by a bevy of Trump administration policies. Based on 2024 data from the US Citizenship and Immigration Services (USCIS), roughly 6% of H-1B recipients were employed directly in education. Flagship state universities and a number of elite private institutions are among the largest recipients of H1-B visa approvals in higher education.

The program is also used to help fill teacher shortages in K-12 for select districts, particularly in STEM and special education fields. For example, more than 500 teaching positions in Texas public schools are filled by teachers on H-1B visas. Through the third quarter of 2025, school districts have been approved for ~500 new H-1B employees, with the largest concentrations in Texas, California, and Alaska.

On October 3rd, a coalition of unions, nurses, employers, and several higher education groups, including the American Association of University Professors, filed a lawsuit in U.S. District Court for the Northern District of California against the administration’s new policy. The plaintiffs contend that the president has overstepped his authority and cannot “unilaterally impose fees, taxes, or other mechanisms to generate revenue from the US” because the “power of the purse” lies with Congress. Furthermore, they argue that the policy violates the Administrative Procedure Act (APA), which would have required a notice-and-comment period. We believe that more lawsuits will arise in the near to medium term, one of which is likely to successfully challenge the $100,000 fee order before the next H-1B visa lottery cycle in March 2026.

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