Commonfund Institute tracks significant policy developments that may affect nonprofit institutional investors. In our most recent article, we summarized the sweeping changes in the 2025 federal reconciliation law, H.R.1. These included changes to Pell Grants and graduate borrowing, a new tiered endowment tax for the largest private institutions, and a floor on corporate charitable deductions. We also covered the law’s effects on the communities that nonprofits serve and noted that most provisions take effect in the 2026-2027 school year. Below we highlight developments since then across tax-exemption standards, immigration, federal funding, student aid, shareholder rights, and ESG policy.
The Midterm Elections and Higher Education Policy
All 435 House seats and 35 Senate seats are on the ballot on November 3. The House is widely expected to flip, and it’s possible that the Senate could as well. Because the executive branch would retain veto power, sweeping legislation is unlikely even if both chambers change hands. The more probable outcome is a holding pattern in which Congress focuses on oversight, how policies are implemented, and negotiating leverage over funding. For those interested in the election and potential impacts on higher ed, the Chronicle of Higher Education will host a post-election readout on November 5.
Questions to watch include whether lawmakers seek to restore science funding, how they handle federal student lending and the number of borrowers likely to default, and what happens at the Department of Education (DOE), which now has roughly half its pre-administration staff. Pell Grant funding, including support for first-year students, is also expected to be a priority.
Tax-Exemption Standards, DEI, and Grant Conditions
On September 3, 2026, Treasury proposed a regulation under which a private school, including K-12 independent schools and higher ed, would lose its federal income tax exemption if it discriminates on the basis of race, color, or national or ethnic origin in its educational, admissions, scholarship, athletic, or other school-supported programs, according to NACUBO. NACUBO notes the proposal appears to go beyond the Supreme Court’s Students for Fair Admissions decision, and has said the rule far exceeds agency authority. The rule would apply to tax years beginning after May 31, 2027, and comments are open through November 3. Venable and other firms have published advisories.
Donor-restricted scholarships may be the hardest practical issue. Treasury acknowledges that some institutions hold endowed funds with race-based eligibility set by donors, and if the rule is finalized, institutions would need to work with donors to modify those terms or consider other options. Independent schools are directly covered, while public institutions are generally not, though their affiliated 501(c)(3) foundations may be. The Council on Foundations expects no direct effect on foundations but warns of a chilling effect on lawful work.
Other developments point in the same direction:
- University of North Carolina at Chapel Hill: On October 19, the university settled federal civil rights investigations. It agreed to end “bridge” or “pipeline” partnerships that consider protected characteristics, such as race, and to remove them from scholarship criteria.
- Diversity, equity, and inclusion (DEI) executive order: On October 14, a federal judge allowed the order on federal contracts to stay in effect for now, reading it as reaching only intentional discrimination already prohibited by federal law.
- Federal grant rules: The Office of Management and Budget’s (OMB) May 29 proposed rule would turn the current Uniform Guidance for the government-wide grant rules into binding regulation. In turn, this would serve to expand grant terminations, restrict DEI-related activity, and limit certain foreign collaboration. Congress delayed the rule through December 11, but the proposal remains pending.
International Students and Federal Funding Risk
A federal judge issued a nationwide injunction blocking a DHS rule that would cap F and J visas1 at four-year Colleges and Universities, and appeals are likely. Separately, the administration has proposed a $70,000 fee when institutions recommend an F-1 student for initial Optional Practical Training (OPT), and $30,000 for STEM OPT extensions. These proposals follow a second straight year of declining international enrollment, and observers warn they could further deter students. Institutions that rely on international tuition may consider modeling further declines, and independent schools with F-1 students may wish to ask counsel whether the visa rule would have reached them.
Funding risk is also showing up late in the fiscal year. The White House moved to revoke $70 million in international education funds already appropriated by Congress, as part of an $810 million “pocket rescission” package, according to Higher Ed Dive. Because the request arrived days before the fiscal year ended, Congress could not act. The Government Accountability Office has deemed the process illegal. For foundations, the practical question is how many grantees depend on federal awards that could disappear late in a fiscal year, and whether bridge funding is warranted.
Student Aid and State Budgets
Several provisions of the 2025 budget law (OBBBA) are now taking effect. Workforce Pell Grants began July 1, 2026, for short career-training programs. Pell Grants are being pro-rated for part-time students, which may make higher-priced programs unaffordable for them. The lifetime graduate borrowing limit falls from $138,500 to $100,000 ($200,000 for professional degrees), Grad PLUS loans will no longer be available to new borrowers, and new Parent PLUS loans are capped at $20,000 a year. These changes could push borrowers toward private loans or lower-priced programs, and potentially impact enrollment.
States may also feel pressure from changes to Medicaid and SNAP in the One Big Beautiful Bill Act (OBBBA, or H.R.1), the reconciliation law signed in July 2025. Together, the changes reduce federal health care and food assistance spending by more than $1 trillion over a decade, largely by imposing work requirements and shifting certain costs onto states. Many states have historically cut higher education funding to close shortfalls, so public institutions and the foundations that support them may want to plan accordingly.
SEC Proposal to Rescind Rule 14a-8
On September 16, the SEC proposed rescinding Rule 14a-8, which requires companies to include qualifying shareholder proposals in their proxy statements. If adopted, proposal rights would be governed by state law and company bylaws, creating a patchwork that could raise compliance costs. For endowments and foundations that file or support proposals as part of their stewardship, rescission would remove an inexpensive tool, and investment committees may wish to discuss whether to comment. For further discussion on this development and its potential impact on investors, listen to IEN’s Future of Finance podcast episode below.
ESG Policy at the State Level
In our first article, we noted that ESG had become a hot-button issue with legislation both encouraging and banning it. At the state level, the balance has tilted toward restriction, though the pace is slowing. According to Ballotpedia, legislatures enacted 14 ESG-related bills in 2026 out of 174 introduced, the fewest since 2021.
Many of these laws target public pension funds and state investments, so private institutions may not be covered directly, while public university endowments and affiliated foundations may be, depending on the statute. Boards may wish to review investment policy language and proxy voting practices with counsel.
Looking Ahead
Tax status, grant conditions, shareholder rights, and investment standards are all in motion at once, and election results and court decisions are likely to shift the picture again. Near-term dates worth calendaring include the November 3 Treasury comment deadline, the OPT fee comment window, and the post-election read on Congress. Commonfund Institute will continue to monitor public policies that currently and could potentially impact endowments, foundations, and the nonprofit sector more broadly.
- F‑1 and J‑1 visas are two major U.S. nonimmigrant categories used by international students and exchange visitors.
