This year stands to bring about major changes to the higher education sector.
Later this month, President-elect Donald Trump will begin his second term in the White House, after promising to bring major shifts to federal higher education policy. Republicans also have control over both the Senate and the House, and with that power they may enact legislation overhauling everything from federal student lending to accreditation.
Meanwhile, many colleges continue to grapple with enrollment and budgetary challenges. Those could worsen in 2025 as colleges face heavy costs and competition over a shrinking pool of students.
To help higher education officials prepare for the year ahead, we're rounding up six trends that we expect to shape the sector in 2025.
1. Lawmakers could pass major higher education policies
With Republicans set to hold the presidency, Senate and House, they have indicated they plan to enact Trump’s policy priorities through a process called reconciliation. Reconciliation only requires the Senate to have a simple majority to pass bills because it avoids the filibuster, which requires 60 votes to overcome.
Republican’s priority legislation is primarily focused on noneducation measures like tax and immigration. But lawmakers may seek to offset the costs of their agenda through elements of the College Cost Reduction Act, a GOP-led higher education package proposed last year, said Jon Fansmith, senior vice president of government relations and national engagement at the American Council on Education.
The original CCRA’s proposals, which will have to be reintroduced to be considered in the new Congress, are wide-ranging. The legislative package included a risk-sharing policy that would put colleges on the hook for loans their students don’t pay off, limits on how much students could borrow, and rollbacks of a handful of Biden-era regulations.
The nonpartisan Congressional Research Service estimated in October that the CCRA would shave $185.5 billion from the federal budget over the next decade. Much of the savings would come from the loss of certain federal lending programs and lower student borrowing.
Those potential offsets are likely attractive to lawmakers, Fansmith said.
“There’s a real risk of higher ed being pulled into a much bigger package as part of much bigger debates but in ways that are substantial and significant and really have some very harmful consequences for students and their families,” Fansmith said.
Fansmith laid out concerns with the risk-sharing proposal, arguing that it would disproportionately harm colleges that “are least capable of dealing with a negative financial penalty.”
An ACE analysis last year found that colleges that enroll higher shares of Pell Grant-eligible students would be more likely to face financial penalties under the risk-sharing policy. In turn, those institutions would have less funding to devote to student services.
“It’s a really, really problematic, really backwards way of trying to get better supports and services to students,” Fansmith said.
2. The fight over DEI could be waged at the federal level
Diversity, equity and inclusion underwent an onslaught of attacks from state lawmakers and institutional leaders last year, resulting in staffing cuts, bans on required diversity statements, and the closure of DEI offices. This year, colleges are likely to see further incursions against DEI programming at the federal level as well.
Project 2025 lays out one influential think tank’s conservative blueprint for the federal government under Republican leadership. It has labeled DEI as divisive and "anti-American propaganda.” It also suggests that DEI trainings “that promote critical race theory” should be a violation of Title VII, a federal law prohibiting employment discrimination.
Project 2025 originated from The Heritage Foundation, one of 11 think tanks the American Association of University Professors found to be behind the wave of anti-DEI legislation sweeping through statehouses.
While Trump sought to distance himself from Project 2025 pre-election, many of his closest allies and supporters helped create the framework and continued to back it publicly.
Project 2025 also calls for prohibiting accreditors from mandating colleges to adopt DEI policies.
The U.S. Department of Education recognizes and oversees accreditors, which act as the gateway to federal funds — a resource few colleges can live without. As of 2023, most major accreditors sought to evaluate if colleges were serving historically disadvantaged students, according to The Chronicle of Higher Education.
Project 2025 suggests that state agencies be allowed to act as accreditors themselves, or that Congress remove the Education Department’s oversight of accreditors and turn the system into one of "voluntary quality assurance."
However, many of the most significant and wide-ranging DEI bans have been toned down or rejected at the state level over accreditation concerns, according to Pen America, a free speech advocacy group.
"If Project 2025’s recommendations are adopted, that guardrail disappears, effectively eliminating accreditation agencies’ watchdog role as a bulwark against state actions or laws that intrude on university autonomy," Pen America said.
3. Budget strains will continue for some
While inflation is easing for institutions, costs remain high. Moreover, enrollment declines and tuition price competition in recent years have added to budget pressures for many institutions, especially smaller private nonprofits and some regional public colleges.
Analysts expect those headwinds to continue into 2025, along with events more difficult or impossible to budget for, such as government policy shifts, cyber attacks and climate events.
Fitch Ratings has issued a negative outlook for the higher ed sector in the year ahead, while S&P Global Ratings released a split outlook: Positive for larger, well-resourced colleges and a negative forecast for what analysts described as “highly regional, less-selective institutions that lack financial flexibility.”
All of the factors listed above weigh on institutions’ operating margins. As we saw in 2024 and prior years, budget deficits often prompt administrations to cut employees and programs. If distress and cash burn are steep enough, institutions can close. Both trends could continue into 2025.
Moody’s Ratings gave 2025 a stable outlook but also forecast that a third of private universities and 20% of publics will rack up operating deficits over 2%.
Many of the colleges that will face those kinds of budget holes are ones that are already struggling. “You can get into a cycle that's hard to get out of, and maybe not even possible to get out of,” said Susan Shaffer, vice president and senior credit officer at Moody’s.
For instance, colleges may miss their target numbers for their incoming classes, or give out too much financial aid and overshoot their budget, Shaffer explained.
"So maybe we need to spend a little bit more to make sure this doesn't happen next year, which makes your budget gap a little bit bigger," Shaffer said. "It's hard to correct something like that."
4. High school graduates are expected to peak
2025 has long been a year marked in the calendars of college leaders and enrollment experts as the kickoff for the oft-discussed demographic cliff — a dropoff in the population of traditional-age college students.
This year, the number of high school graduates is expected to peak at around 3.8 million, according to Western Interstate Commission for Higher Education. The total is then projected to drop by about 10.3% to 3.4 million by 2041.
2025 could be the last year for colleges and states to proactively launch enrollment strategies before the decline commences. Colleges could avoid enrollment declines with modest improvements to the college-going rate, according to WICHE.
Some colleges are also focusing more on recruiting nontraditional students.
Last year, New Jersey's secretary of higher education said the state successfully reengaged 8,600 students who previously stopped out by offering personalized coaching and financial support, including for application fees and unexpected expenses. The state will award an additional $1.6 million to 18 public colleges in fiscal 2025 to continue the effort.
Even with the demographic cliff still ahead, colleges are already facing tough enrollment trends.
Initial data from the National Student Clearinghouse Research Center found that 5% fewer first-year students enrolled in fall 2024 compared to the previous year, with the greatest declines among students fresh out of high school.
Some experts posited that the rocky rollout of the 2024-25 Free Application for Federal Student Aid stymied first-year enrollment numbers. Colleges may feel those declines for years to come.
"When students miss that immediate transition from high school to college, their likelihood of going back later and their long-run likelihood of attaining a degree or credential both shrink dramatically," Bill DeBaun, senior director of data and strategic initiatives at the National College Attainment Network, told Higher Ed Dive at the time.
The latest FAFSA launched Nov. 21 — and without the numerous technical difficulties that plagued the prior form. Moving forward, the Education Department will be required to release the FAFSA by Oct. 1, following a bill signed into law last month. The deadline is meant to allow college financial aid offices to plan their year more reliably and provide aid packages to students sooner.
5. Colleges will feel the pressure to invest
While budgets may be tight and resources constrained, colleges are still under pressure to invest. After years of expense cuts and austerity, there is a backlog of needs — for employee raises, building maintenance, student success and programmatic initiatives.
Moody’s in August described a “hidden liability” of deferred maintenance across the sector that could amount to $950 billion — and that’s just for the institutions it rates. Many institutions also have a growing need to complete capital projects, such as building affordable housing for graduate students. Shaffer additionally pointed to the need to invest in technology as well, including cybersecurity.
Fitch also raised the issue in a December report.
“For most schools capital spending has remained well below pre-pandemic levels through this past year, as evidenced by increasing levels of deferred maintenance and the highest average age of plant in years for many Fitch-rated institutions,” analysts noted.
Putting needed projects off much longer can hurt an institution’s competitiveness with recruiting students, faculty and donors, which can exacerbate financial strains. And yet, those under budget pressure are likely to struggle to come up with capital.
“If you're not investing, your curb appeal goes down, and curb appeal is more important than ever to students these days,” Shaffer said. “People don't want to live in a residence hall that doesn't have air conditioning.”
One positive that Moody’s noted for institutions: Declines in interest rates in 2025 could make borrowing cheaper, helping to fuel projects while also increasing debt loads.
6. Scrutiny over OPMs may shift to the states
For years, student advocates have been fighting for stronger federal oversight of third-party vendors that help colleges launch and run online programs. But the Biden administration’s plans to bolster federal oversight of these companies — called online program management companies, or OPMs — ultimately faltered, and they are unlikely to gain steam again under Trump’s second term.
OPMs often provide services like marketing, recruitment and curriculum design to colleges in exchange for a cut of the programs' tuition revenue. Opponents of the tuition-sharing model argue that these arrangements incentivise OPMs to aggressively recruit students into programs and drive up the price of online education.
In 2023, the Education Department announced that it would review the guidance that allows colleges to strike tuition-share deals with OPMs that also provide recruitment services.
But the agency hasn’t updated the guidance. And in November, one prominent Republican lawmaker urged the Education Department to preserve the guidance over concerns the Biden administration might change it before Trump takes office.
The Education Department also released separate guidance in 2023 to increase oversight of colleges’ contracts with OPMs and other third-party providers. However, the department quickly suspended — and ultimately rescinded — the guidance amid widespread criticism from the higher education industry.
That doesn’t necessarily mean OPMs will escape more oversight. “The advocates behind this have been crystal clear,” said Phil Hill, an ed tech consultant. “They’re not giving up on this issue.”
In Minnesota, for instance, lawmakers passed a bill last year that prevents the state’s public colleges from entering tuition-sharing deals with OPMs that offer recruitment help.
Similarly, California’s state auditor published a report last year advising that the University of California system bolster oversight of its institutions’ use of OPMs. The report also found that each of the five campuses it reviewed gave prospective students “incomplete or misleading information” about OPM involvement in some of their programs.
“The battleground over them is going to be in a different place,” Hill said. “It’s going to be with state regulations and auditors.”
