AGB Policy Alert: U.S. Department of Education Proposes Major Changes to Federal Education Grant Rules

On August 24, 2026, the U.S. Department of Education (ED) proposed significant changes to the Education Department General Administrative Regulations (EDGAR) and related regulations governing the administration of grants by the agency. The proposal would change how ED announces, evaluates, funds, continues, and terminates grant awards, and would add new requirements tied to employment and admissions practices, political statements, free expression, and executive orders.

The proposed rule is not final, and comments are due by September 23, 2026. ED intends to issue a final rule later this year. Institutions with current or prospective ED grants should assess the potential financial, legal, and operational implications now.

Key Provisions

Expands ED’s discretion over continuation funding and grant termination.

• The proposal would clarify that approval of a grant application does not obligate the federal government to provide future continuation or supplemental funding.
• It would also permit ED to consider additional information when making continuation decisions, deobligate excess unspent balances, and terminate discretionary awards “for convenience” to preserve the department’s ongoing programmatic discretion.
• These provisions could make multiyear federal awards less predictable and expose grant-funded programs, personnel, and institutional commitments to changes in ED priorities after an award has been made.
• The proposal raises important questions about the standards, notices, safeguards, and transition periods that would apply to funding reductions or terminations.

Reorients grant selection criteria around administration priorities.

• ED would revise the criteria used to evaluate discretionary grant applications by emphasizing employment and career outcomes, merit-based decision-making, family engagement, coordination with community and state investments, evidence of effectiveness, implementation fidelity, and the ability to scale successful projects.
• The proposal would also remove references to underserved populations, teachers’ unions, social and emotional development, and the What Works Clearinghouse.
• These changes could materially affect which projects are competitive for federal funding and may place greater weight on economic outcomes and administration-defined priorities than on institutional missions or locally identified needs.

Favors applicants willing to accept lower indirect cost rates.

• The proposal would create a competitive preference for applicants that agree to charge indirect costs below their federally negotiated rates.
• Institutions may face pressure to subsidize federal projects with institutional funds. Lower indirect cost recovery can shift the cost of compliance, facilities, technology, grant administration, and other essential infrastructure onto the institution, potentially disadvantaging organizations with fewer unrestricted resources.

Adds new policy-sensitive grant compliance requirements.

• Grantees would be required to ensure that grant-related hiring, admissions, promotions, participant selection, and compensation decisions are based on “merit and high standards” without regard to specified protected characteristics or their proxies, subject to certain exceptions.
• Grantees would also have to ensure that employment practices do not compel statements supporting or opposing political views and that applicable policies protect freedom of speech, inquiry, and the press.
• Certain grantees would additionally be required to use federal funds in accordance with executive orders.
• Terms such as “merit,” “proxies,” and “compelled statements” may require further clarification. Institutions may also need to reconcile the provisions with existing policies on employment, admissions, academics, free expression, civil rights, and grant compliance. Incorporating executive orders could create additional uncertainty as federal priorities change.

Moves federal grant notices primarily to Grants.gov.

• ED would eliminate requirements to publish certain grant notices, annual priorities, maximum award amounts, and intergovernmental review information in the Federal Register.
• Grants.gov would become the primary source for funding opportunities. Applicants claiming nonprofit status would also be required to submit supporting documentation.

Call to Action: Review the Proposal and Consider Commenting by September 23

Institutions, systems, foundations, and other stakeholders should review the proposed rule, assess its potential impact, and consider submitting comments through the Federal eRulemaking Portal under Docket ID ED-2026-OPEPD-2542.

Why It Matters

The proposal could affect the reliability of federal grant revenue, the sustainability of grant-funded programs, institutional cost structures, compliance exposure, and the federal government’s influence over institutional policies and priorities.

Boards should work with institutional leadership to:

• Identify the institution’s financial and operational exposure to ED grants, particularly programs dependent on annual continuation funding.
• Evaluate contingency plans for grant reductions, deobligation of unspent balances, or early termination.
• Assess the full institutional cost of accepting indirect cost rates below negotiated levels.
• Confirm that legal, grants, human resources, admissions, and academic leaders are reviewing the new compliance provisions.
• Ensure that the institution has reliable systems for monitoring Grants.gov.
• Determine whether the institution or system should submit comments.