Key Points
- The Trump administration’s 2025 Compact for Academic Excellence asked colleges for concessions in exchange for vague funding preferences, and most invited universities declined to sign.
- The federal government should make 12 commitments of its own instead, including indexing the Pell Grant to inflation and tying student loan limits to graduates’ earnings.
- Several federal education benefits have lost value for decades, including the $5,250 employer education exclusion set in 1986 and the $2,500 student loan interest deduction cap.
The Compact for Academic Excellence in Higher Education (PDF File) was a voluntary set of federal policy proposals the Trump administration sent to U.S. colleges and universities in October 2025.
The policy proposals included merit-based criteria for college admissions and hiring, restrictions on free speech on college campuses, limits on international student enrollment, a five-year tuition freeze and free tuition for hard-science students at the wealthiest schools.
The compact came with vague preferential funding promises and was rejected by most of the universities invited to sign.
Would you like to save this?
We'll email this article to you, so you can come back to it later!
What Should A Federal Compact For Higher Education Include?
A true Federal Compact for Higher Education must shift the focus from federal mandates to federal commitments to establish reliable funding, protect scientific integrity, ensure academic independence, modernize tax policy and secure long-term access and financial support for low-income students. These commitments should be stable, predictable and transparent, without intrusive ideological conditions.
By establishing expectations for commitments from the federal government, this compact will better serve the national interest and benefit students, families and policymakers.
| Commitment | Area | What Washington would do |
|---|---|---|
| Stable Student Aid | Student Aid | Make Pell a fully mandatory entitlement indexed to CPI-U and double the maximum award |
| Predictable Loan Limits | Student Aid | Tie loan limits to recent graduates’ earnings, not college prices |
| Reward State Investment | Student Aid | Reward states that maintain or raise per-student funding |
| Long-Term Research Funding | Research | Multiyear appropriations and standardized reporting across agencies |
| Merit-Based Research Awards | Research | Independent peer review, shielded from political interference |
| Reproducible, Open Research | Research | Fund replication, a national data archive and free public access |
| Academic Freedom | Autonomy | No funding strings on curriculum, hiring, admissions or speech |
| Consumer Protection | Transparency | Consistent enforcement against predatory loans and misrepresentation |
| Mandatory Cost Disclosures | Transparency | Require a standardized aid offer that shows net price |
| College Data Infrastructure | Transparency | Fund student-level outcome data, free to researchers and families |
| Stable Regulations | Transparency | Follow the master calendar: final by November 1, effective July 1 |
| Modern Tax Policy | Taxes | Replace the endowment tax, end scholarship taxes, index education tax breaks |
Student Aid And Affordability
Provide Stable And Adequate Student Financial Aid
The Federal Pell Grant increases college access and success among low-income students, by making college more affordable. It also reduces student loan debt at graduation.
The Federal Pell Grant began in 1972 as the Basic Educational Opportunity Grant (BEOG), with the first funds awarded in the 1973-1974 academic year. It was renamed in honor of Sen. Claiborne Pell in 1980.
The Federal Pell Grant program is funded through a combination of mandatory and discretionary funding, meaning that each year’s maximum grant depends on annual Congressional appropriations.
The Federal Pell Grant remained unchanged during several time periods of 2 or more years, including a four-year period from 2003-04 through 2006-07 and another from 2023-24 through 2026-27, when the maximum award held at $7,395.
The maximum Pell Grant has not kept pace with increases in college costs, eroding its buying power.
Congress should transform the Pell Grant program from a grant whose purchasing power depends on repeated Congressional action into a true entitlement whose maximum award automatically increases with inflation. The program should be based entirely on mandatory funding.
This would provide more predictability to this important source of federal funding for low-income college students. Indexing it to the Consumer Price Index (CPI-U), as opposed to tuition inflation, would apply downward pressure on college costs while ensuring stability in student aid funding and alignment with families’ ability to pay.
This would stop the decoupling of college costs from consumer purchasing power.
The loss of buying power for the Pell Grant has caused low-income students to be twice as likely to borrow to pay for their education and to graduate with double the debt of middle and high-income students. To ensure that low-income students would graduate with the same amount of debt as other students, the maximum Pell Grant should be doubled.
Promote Predictable Federal Student Loan Policy
Other forms of federal student financial aid, such as the federal education loan programs, should likewise be automatically adjusted for inflation. For example, the annual and aggregate student loan limits should be based on borrowers’ ability to repay rather than on historical borrowing limits. Annual and aggregate loan limits should be pegged to periodic increases in the earnings of college graduates.
Loan limits should not increase just because college prices increase. Otherwise, higher federal student loan limits could enable rather than constrain tuition inflation.
Instead, student loan limits should be based on the income of recent college graduates disaggregated by educational attainment. Possible sources of this data include the Bureau of Labor Statistics (BLS) or the U.S. Census Bureau. This would ensure that college students can borrow no more than they can afford to repay.
The current loan limits are too low for some degree programs and too high for others. Annual and aggregate loan limits for undergraduate students have not increased since 2008. The One Big Beautiful Bill Act changed graduate and parent borrowing limits starting July 1, 2026, but left undergraduate limits untouched.
Baseline thresholds should be established for essential public service fields, such as social work, early childhood education and public interest law.
Reward States That Invest In Public Higher Education
Federal funding should supplement, rather than supplant, state investment in public higher education. Federal programs should provide incentives for states to maintain or increase per-student funding for public colleges and universities and should discourage states from reducing higher-education appropriations when federal funding increases.
Scientific Research And Academic Autonomy
Guarantee Long-Term Research Funding
Congress should provide multiyear funding appropriations for federal research agencies, such as NSF, NIH, CDC, DOE, DARPA, ONR, USDA, NIST, NOAA and NASA, with predictable annual appropriations that allow universities and researchers to make long-term commitments to laboratories, equipment, personnel and research programs.
This will protect basic and applied research from the vicissitudes of the annual appropriations cycle, enabling robust, predictable funding of basic and applied research in science, technology, engineering, mathematics and healthcare.
Administrative burdens should be streamlined and standardized across all federal agencies to minimize overhead. Reporting requirements should also be standardized across all funding agencies.
Independent, Merit-Based Research Funding
Federal research funding should be awarded to high-quality research projects based on scientific and technical merit through rigorous, independent peer review by qualified subject-matter experts. The process should be protected from political, ideological and partisan interference.
The federal government should also exercise restraint in matters of institutional autonomy, governance, curriculum and academic freedom.
Ensure Reproducible And Accessible Research
Funding should also be provided to ensure that scientific results can be reproduced, replicated and generalized to ensure their accuracy. Funded research projects should be required to store all data and code in a free national data archive.
Research supported by federal funds should be made freely accessible to the public. This would codify and provide funding for existing open science mandates.
Protect Academic Freedom And Institutional Autonomy
Federal financial support should not become a mechanism for political control of curriculum, research priorities, faculty hiring, admissions policies or academic speech, except where federal law independently requires regulation to protect civil rights, safety or the integrity of federal programs.
Transparency And Consumer Protection
Enforce Consumer Protections And Prevent Fraud
The federal government should provide consistent and predictable enforcement against fraud affecting college students and educational institutions. This could include predatory loan programs and the misrepresentation of college costs, financial aid, the nature of educational programs, graduation rates and employability.
Consumer protection should be consistent, transparent and evidence-based, rather than dependent on shifting political priorities.
Make College Cost Disclosures Mandatory
Congress should ensure meaningful standardized financial aid offer forms by requiring all colleges to adopt the existing voluntary standard, the College Financing Plan, which clearly distinguishes grants from loans and requires disclosure of the college’s net price.
The college’s net price is the difference between total annual college costs (including tuition, fees, housing, meals, transportation, textbooks, supplies, equipment and miscellaneous personal expenses) and annual gift aid (including grants, scholarships and tuition waivers). It is the discounted sticker price, the amount families will have to pay from savings, income and loans.
There are mandatory standards for other major financial transactions, such as the Monroney Window Sticker for cars, the Closing Disclosure for mortgages, ERISA for retirement plans, and the Schumer Box for credit cards. It is time for Congress to establish a mandatory standardized disclosure form for financial aid offers, including college costs and financial aid.
| Purchase | Standard form | Required? |
|---|---|---|
| New Car | Monroney window sticker | Mandatory |
| Mortgage | Closing Disclosure (formerly HUD-1) | Mandatory |
| Credit Card | Schumer box | Mandatory |
| College | College Financing Plan | Voluntary |
Build And Maintain Robust College Data Infrastructure
The federal and state governments have a lot of education data, but it is fragmented and not available from a single unified source.
The federal government should provide adequate and stable funding for secure, privacy-protected student-level longitudinal data on college access, college affordability, financial aid, retention, transfers, college completion, program-specific outcomes, student loan debt, post-graduation employment and return on investment.
This data can be aggregated to evaluate the effectiveness of college programs, academic majors, types of student financial aid, persistence, degree attainment rates and debt-to-income ratios. This data should be collected in both annual and longitudinal databases. The data should be made freely available to researchers and consumers.
Establish Stable And Predictable Federal Regulations
Major changes to federal higher-education regulations should conform to master calendar provisions, which require changes to be finalized by November 1 to take effect on July 1 of the next year. This will ensure that there is enough time for the federal government to provide clear guidance and for colleges to prepare for implementation.
Tax Code Modernization
Modernize Tax Policy To Support Students
The endowment excise taxes exceed the financial aid budgets of some colleges that are subject to these federal taxes. Congress should replace the endowment tax with a financial-aid incentive that rewards institutions for increasing need-based aid to low-income students.
Students cannot make full use of their college scholarships because the federal government taxes scholarships used for anything other than tuition and textbooks. Scholarships were tax-free before 1986. Today, almost $5 billion in scholarships are subject to income taxes according to our latest reporting, affecting about 800,000 college students.
Even the Federal Pell Grant may be taxed if it is used for room and board or other non-qualified expenses. The federal government gives with one hand while taking back with the other.
The $5,250 annual exclusion for employer-paid educational assistance has remained essentially unchanged since 1986 despite decades of increases in tuition and wages. This represents a 40-year failure to index employer-paid educational assistance for inflation. If this amount were indexed for inflation, it would be more than $16,000 today.
The One Big Beautiful Bill Act indexes the $5,250 limit for inflation after 2026, but indexing starts from $5,250, not from where the limit would be had it kept pace since 1986.
The $2,500 limit on the Student Loan Interest Deduction has not been increased since 2001 and is phased out at relatively low income thresholds. If the deduction were adjusted for inflation, it would be about $4,700 today.
| Benefit | Current limit | Unchanged since | If indexed to CPI-U |
|---|---|---|---|
| Employer Educational Assistance Exclusion | $5,250 | 1986 | About $16,000 |
| Student Loan Interest Deduction | $2,500 | 2001 | About $4,700 |
| Dependent Undergrad Aggregate Loan Limit | $31,000 | 2008 | About $48,200 |
| First-Year Dependent Undergrad Loan Limit | $5,500 | 2008 | About $8,600 |
| Maximum Pell Grant | $7,395 | 2023-24 | About $8,100 |
Want to see how any frozen limit has held up to inflation? Plug the amount and year into The College Investor’s inflation calculator.
Frequently Asked Questions
What Was The Compact For Academic Excellence In Higher Education?
The compact was a voluntary agreement the Trump administration sent to nine universities on October 1, 2025. It asked schools to freeze tuition for five years, cap international undergraduate enrollment at 15% and adopt admissions and governance changes in exchange for preferential federal funding. Seven of the nine publicly declined.
How Much Is The Maximum Pell Grant For 2026-27?
The maximum Pell Grant for 2026-27 is $7,395, the same amount as the past three award years. Adjusted for inflation since 2023, it would be worth about $8,100.
Are Scholarships Taxable?
Scholarships are tax-free only when used for tuition, required fees, books and required supplies. Scholarship money spent on room, board or other living costs counts as taxable income, and that rule applies to Pell Grants too.
Why Haven’t Undergraduate Federal Loan Limits Increased Since 2008?
Annual and aggregate student loan limits are set by Congress in the Higher Education Act and do not adjust for inflation automatically. Congress last raised undergraduate limits in 2008, which set the dependent undergraduate aggregate at $31,000.
A Compact Works Only When Both Sides Commit
The Compact for Academic Excellence asked colleges to make binding promises in exchange for funding preferences that were never defined. Most of the universities declined to sign it, which is a reasonable response to an offer that could change with the next budget or the next administration.
Colleges cannot plan a to build a laboratory, hire more faculty, or provide more financial aid if federal funding shifts every year and arrives with political conditions attached.
If the federal government indexed the Pell Grant to inflation, tied student loan borrowing limits to what graduates earn, funded research on multiyear cycles, and stopped taxing the aid money it provides, students, families and colleges would finally have something stable to build on. Washington should go first.
Editor: Robert Farrington
Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, USA Today, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.
Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).