Public colleges and universities across the United States are confronting a severe financial squeeze as federal funding cuts, declining state support, and enrollment uncertainties converge to create what education leaders warn could be a prolonged fiscal crisis.
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"Even in states that avoided outright cuts, flat funding or small increases effectively translated into reductions for many institutions after accounting for inflation and rising operating expenses," the Pew report states.
The University of California system warned state legislators in September that "recent actions by the federal government, with the distinct possibility of more to come, place the entire University of California at risk" and would cost an additional $4 billion to $5 billion annually to compensate for lost federal funding.
President Donald Trump's preliminary fiscal 2026 budget proposes cutting nearly $18 billion from the National Institutes of Health compared to fiscal 2025 levels and $5.1 billion from the National Science Foundation since fiscal 2024. These reductions target agencies that provide the bulk of university research funding, which totaled $60 billion in fiscal 2023.
The Pew analysis warns that "the ripple effects of these budget decisions are likely to intensify as the impact of federal changes on higher education and state budgets becomes clear."
The funding crisis has forced swift action at state university systems nationwide. The University System of Maryland's Board of Regents slashed its fiscal 2026 budget by 7% to offset a $155 million state funding reduction—the second consecutive year of cuts. The system raised tuition and fees while warning that furloughs or pay cuts may still be necessary at some campuses.
Michigan State University, which receives more than 20% of its revenue from federal grants and contracts, eliminated 182 positions due to federal funding cuts and budget challenges. The report notes the university identified at least 160 projects that were "either terminated or otherwise affected by actions such as stop work orders, pauses on funding decisions, and conditional terminations."
Washington state dealt a 1.5% cut to all public four-year institutions as part of efforts to close a $16 billion budget shortfall. Virginia Governor Glenn Youngkin paused $600 million in funding requests for 10 higher education infrastructure projects in May. South Dakota lawmakers cut $9 million for campus maintenance and repair from the fiscal 2026 budget, "prompting a warning from university presidents that deferring capital costs and maintenance can create more expensive problems down the road," according to the report.
Federal agencies compounded the pressure by imposing a 15% cap on indirect cost reimbursements for research grants, forcing universities to find alternative funding sources for facilities and administrative expenses. The NIH announced the change in February, with the Department of Energy, NSF, and Department of Defense following suit.
Universities that rely heavily on federal funding face heightened vulnerability. The University of Michigan and University of Alabama at Birmingham each receive over a quarter of their revenue from federal sources, according to the most recent data available.
"Major research universities serve as economic hubs for their regions, and changes to funding structures could have ripple effects on the surrounding communities and their economies," the Pew researchers wrote.
Enrollment challenges add another layer of financial stress. Undergraduate enrollment at public and private universities declined from its 2010 peak through the 2022-23 school year. While total postsecondary enrollment surpassed pre-pandemic numbers in 2024-25, undergraduate enrollment remains below those levels.
The Western Interstate Commission for Higher Education projects steady declines in college-age students starting in 2026 as students born during the 2008 recession graduate from high school. Tuition and fees account for nearly 20% of public university revenue.
International student arrivals dropped almost 20% in August compared to the previous year—the largest decline on record outside the pandemic—following a temporary federal pause on student visa reviews in spring 2025. International students typically pay full out-of-state tuition, providing significant revenue for universities in Arizona, Illinois, and Texas.
State university systems in Connecticut, Kansas, Maryland, Minnesota, Missouri, Nebraska, New Hampshire, and Wyoming are implementing cost-cutting measures to address budget shortfalls.
Higher education traditionally serves as the "balance wheel" of state budgets, the report notes, because lawmakers can more easily cut university funding than K-12 education or Medicaid, which are governed by funding formulas and federal match requirements. For most states, higher education ranks as the third-largest expenditure.
"What remains to be seen is whether any future return to more stable fiscal conditions will bring balance to higher education funding once more, or whether these challenges are now a permanent part of the landscape," the Pew analysis concludes.
