Months into the second Trump administration, clear trends are reshaping the higher education landscape. Economic uncertainty stemming from inconsistent tariff policies has left businesses and consumers grappling with unpredictability. Meanwhile, efforts by the administration and congressional leadership to overhaul federal funding for higher education, including cuts to research grants and proposed cuts to Pell Grants and student loans, have created significant challenges for the sector.
The U.S. economy contracted slightly in the first quarter of 2025, with the administration’s erratic and unpredictable policies amplifying recession risks. These fluctuations have led some to draw comparisons to the 2008 Great Recession, particularly regarding public higher education. While some lessons of that recession for higher education, such as those related to state appropriations, remain relevant, others may not apply due to the administration’s unique policies and priorities.
Since the 1980s, economic downturns have increasingly impacted public higher education, primarily due to state budget cuts. During the 1980 recession, state educational appropriations per full-time-equivalent student dropped by 6 percent but recovered to pre-recession levels by 1985. In contrast, during the 2008 Great Recession, funding fell by nearly 26 percent, and most states never fully restored funding to pre-recession levels before the COVID-19 pandemic once again disrupted budgets in 2020. This prolonged recovery left public institutions financially weakened, with reduced capacity to support students.
More than a decade after the Great Recession, public institutions were struggling to regain the level of state funding they once received. This prolonged recovery significantly affected student loan borrowing. The Great Recession weakened higher education systems as states shifted funds to mandatory expenses and relied on the federal student loan system and Pell Grants to cover a growing share of students’ educational costs. As a result, when states reduce funding, students and their families shoulder more financial responsibility, leading to greater student loan debt.
During the Great Recession, public institutions were operating with reduced funding and downsizing, even as rising joblessness drove more people to enroll in college. Before 2008, total enrollment in degree-granting institutions was about 18.3 million, but by 2011–12, it exceeded 21 million. This period marked the emergence of the modern student loan crisis. Public institutions, already strained by reduced funding, faced the dual challenge of accommodating more students while maintaining quality. For many students, especially those pursuing graduate degrees, borrowing became a necessity. The economic downturn exacerbated these trends, further entrenching reliance on debt to finance education.
A future recession could have an even more pronounced impact on public higher education, particularly in terms of state funding. The recently passed House budget bill, which proposes substantial cuts to higher education and Medicaid, exacerbates this risk by forcing states to prioritize addressing these funding shortfalls. Consequently, as legislatures shift resources to more immediate needs, both states and students may find themselves unable to rely on federal aid to support education. Long-standing research indicates that states will prioritize health-care funding over higher education. This pattern suggests that recent state investments in higher education could be rolled back or significantly reduced, even before a recession takes hold.
The financial pressures on public institutions are already evident. Some systems are considering closing branch campuses, while others are cutting programs, laying off staff or grappling with declining enrollments. In addition, public regional institutions are particularly at risk, as they depend heavily on state funding and serve many of the students most vulnerable to financial challenges. If a recession occurs, these institutions may face severe and rapid downsizing.
Following downsizing, a key consideration is whether a future recession will lead to an enrollment rebound similar to that seen during the Great Recession. This issue can be analyzed through two key factors: (1) the severity of joblessness and (2) the availability of grants, scholarships and loans, as well as the repayment structures of those loans.
During the 2008 crisis, unemployment peaked at 10 percent, double the pre-recession rate, with a loss of 8.6 million jobs. Higher unemployment historically benefits higher education as individuals seek to retool their skills during economic downturns. Economists predict that under the current administration, unemployment could rise from 4.1 percent to between 4.7 percent and 7.5 percent, though projections are uncertain due to volatile policies. While higher unemployment might lead more people to consider enrolling in college, proposed changes to financial aid policies could significantly dampen such trends.
The House’s One Big Beautiful Bill Act introduces stricter eligibility requirements for Pell Grants, such as tying awards to minimum credit-hour thresholds. Students would need to enroll in at least 30 credit hours per year for maximum awards and at least 15 credit hours per year to qualify at all. Furthermore, the bill eliminates subsidized student loans, meaning students would accrue interest while still in school. This change could add an estimated $6,000 in debt per undergraduate borrower, increasing the financial burden on students and potentially deterring enrollment.
On the repayment side, the proposed Repayment Assistance Plan would replace existing income-driven repayment options. Unlike current plans, RAP bases payments on adjusted gross income rather than discretionary income, resulting in higher monthly payments for lower-income borrowers. Although RAP ensures borrowers do not face negative amortization—which is important for borrowers’ financial and mental distress—the 30-year forgiveness timeline is longer than that of current IDR plans, and the lack of inflation adjustments makes it less appealing than current IDR plans. Together, these changes could discourage potential students, particularly those from low-income or disadvantaged backgrounds, and depress graduate student enrollment.
The bill also introduces a risk-sharing framework that requires institutions to repay the federal government for a portion of unpaid student loans. This framework, based on factors such as student retention and default rates, could influence enrollment decisions. Institutions might avoid admitting students who pose financial risks, such as those from low-income backgrounds, with lower precollege performance or nonwhite students, thereby restricting access and perpetuating inequities. Alternatively, some institutions may opt out of the student loan system entirely, further limiting opportunities for those who rely on federal aid.
Recent executive actions pausing international student visa interviews will hinder the ability to recruit international students and eliminate the potential for these students to help subsidize low-income domestic students. As a result, institutions have fewer resources to support key groups in the administration’s electoral base without burdening American taxpayers. These actions not only increase the cost of higher education but also appear inconsistent with a fiscally conservative ideology.
Mass layoffs in the Department of Education have delayed financial aid processing and compliance and hindered institutions’ ability to support more low-income students during an economic downturn. These personnel play a critical role in ensuring that state higher education systems receive the funding needed to expand access for low-income students. During the last recession, their efforts were essential to fostering student success, but under the current administration, the federal government continues to be an unreliable partner.
While lessons from the Great Recession may offer some insight for public higher education during a future recession, the financial context and the priorities of the administration and congressional majority leadership differ significantly. Unlike the Great Recession, the next economic downturn may not lead to a surge in higher education enrollment. Without proactive measures to protect funding, expand financial aid and increase opportunity, public higher education risks reduced capacity and declining student outcomes. These changes will likely undermine higher education’s role as a pathway to economic mobility and societal progress.
