The US Department of Education (ED) has issued a Notice of Proposed Rulemaking (NPRM) proposing changes to the Education Department General Administrative Regulations (EDGAR) governing federal education grants. Although ED characterizes many of the changes as technical, administrative, or efficiency-related, several proposed provisions could have significant implications for colleges and universities.
The proposal comes as the Office of Management and Budget (OMB) considers a much broader overhaul of the government-wide Uniform Guidance in 2 CFR Part 200. As discussed in our June 3, 2026, alert, OMB has proposed converting the Uniform Guidance into a binding “Uniform Grants Regulation” and making significant changes to federal grant oversight, nondiscrimination and DEI requirements, foreign collaborations, award suspensions and terminations, and other aspects of federal funding.
The ED proposal itself does not adopt the substance of OMB’s May 2026 proposal. Rather, ED continues to incorporate 2 CFR Part 200 into its own regulations, meaning that changes ultimately made to the government-wide Uniform Guidance will generally become part of the regulatory framework applicable to ED awards, subject to the provisions ED specifically excludes or supplements. ED also proposes several substantive changes of its own.
The proposed changes should also be viewed against the backdrop of recent litigation challenging the Administration’s use of grant conditions to implement executive orders and other policy priorities. Most recently, a federal district court in Rhode Island vacated new Department of Health and Human Services (HHS) and Housing and Urban Development (HUD) grant conditions after concluding that the agencies had acted arbitrarily and capriciously under the Administrative Procedure Act (APA). That decision underscores that federal agencies cannot necessarily rely on executive orders alone to justify significant changes to grant conditions without adequately explaining the policy change, considering recipients’ reliance interests, and addressing conflicts with existing legal requirements.
NPRM Key Takeaways
ED Would Expressly Recognize Broad Authority to Suspend and Terminate Discretionary Grants
One of the most consequential provisions would revise 34 CFR §75.901 to expressly provide that ED may terminate discretionary awards, in whole or in part, for noncompliance, for the convenience of the Secretary of Education (Secretary), by mutual agreement, upon notification by the recipient or subrecipient, or pursuant to additional terms and conditions in the federal award. ED also proposes new provisions addressing temporary suspension of awards.
ED explains that the proposed changes are similar to the existing authority in 2 CFR §200.340(a)(4) to terminate awards that are inconsistent with program goals or agency priorities. ED also expressly invokes the longstanding federal procurement concept of termination for convenience and recent Supreme Court decisions, including Department of Education v. California, 604 U.S. 650 (2025), and National Institutes of Health v. American Public Health Association, 606 US ___ (2025), in stating that “grantee agreements are ultimately contractual in nature.”
For colleges and universities, the practical concern is increased uncertainty around the continuity of discretionary federal funding. The proposed framework could permit ED to interrupt or terminate an award not only because of recipient noncompliance but also based on the ED’s determination that continuation is inconsistent with program goals or agency priorities.
Continuation Funding Would Remain Subject to Significant Departmental Discretion
The proposal would also revise the rules governing continuation of multiyear projects. Proposed §75.253 would clarify the Secretary’s authority to determine whether to make a continuation award and, if so, the amount of that award. ED proposes to permit the Secretary to consider all relevant available information, including information contained in the original grant application and the grantee’s performance and activities during the prior budget period.
The proposed rule would also provide that a decision to reduce or not make a continuation award does not constitute a “withholding” under section 455 of the General Education Provisions Act (GEPA). As a result, the Office of Hearings and Appeals would lack jurisdiction over such decisions, significantly reducing grantees’ procedural protections against adverse continuation decisions.
Separately, proposed §75.230 would clarify that approval of a grant application does not obligate the federal government to provide additional funding in the future. ED characterizes this as a clarification of existing Department practice. Proposed §75.251(d) would also clarify that the Secretary may consider unspent or unobligated funds in making funds available for multiyear projects, including by adjusting awards based on an unspent balance.
New Merit and Nondiscrimination Requirements
The NPRM proposes a new §75.500(f) that would require grantees to ensure that hiring, admissions, promotion, and compensation practices under the grant are based on merit and high standards and conducted without regard to race, color, religion, sex, national origin, or proxies for those characteristics, subject to specified exceptions. The provision also would require that the grantee’s employment practices do not compel statements of belief in support or opposition to any political views as a condition of continued employment, promotion, admission, project participation, or the delivery of a benefit previously promised or entitled to the employee, and that, where applicable, the grantee has policies protecting freedom of speech, inquiry, press, association, and research.
ED proposes parallel merit-related requirements for state-administered programs under §76.500.
This provision should be considered alongside the broader nondiscrimination and DEI provisions proposed by OMB in its separate Uniform Guidance rulemaking.
Lower Indirect Costs Could Become a Competitive Advantage
The NPRM proposes a new §75.228 allowing the Secretary to provide a competitive preference to applicants that propose to charge lower indirect costs than their negotiated rate. The preference would be available when the Secretary determines that special consideration is appropriate based on the objectives and design of the particular grant program. ED specifically identifies programs where maximizing resources for direct services, evidence-based interventions, capacity-building activities, or other programmatic investments may justify such a preference.
The preference would be disclosed in the application notice, allowing applicants to know before applying that a lower indirect cost rate could improve their competitiveness. An applicant could potentially qualify for a preference by voluntarily reducing its negotiated rate by a specified percentage or by declining to charge indirect costs. The institution would then be required to maintain the reduced rate for the life of the grant. As a result, the proposal could create a competitive advantage for institutions with historically low indirect cost rates and could create pressure on institutions with higher rates to accept reduced facilities and administrative (F&A) recovery in selected competitions.
Importantly, the proposed rule would provide that the election to charge lower indirect costs may not be charged directly, used to satisfy matching or cost-sharing requirements, or charged to another Federal award.
This provision should also be considered alongside OMB’s separate proposal, which would establish a government-wide principle favoring lower indirect cost rates in discretionary awards.
Greater Departmental Discretion in Grant Competitions
ED proposes substantial revisions to the discretionary-grant selection criteria in §75.210. Among other changes, the revised criteria would allow the Secretary to consider factors including the significance of the project, educational and employment outcomes, workforce needs, systemic change, innovation, capacity building, project sustainability, evidence-based practices, and the applicant’s ability to continue the project beyond the federal funding period. The proposed criteria also would expressly permit consideration of whether admissions, promotion, or participant-selection decisions made under a grant are based on academic excellence and high standards without consideration of specified protected characteristics or proxies.
The effect is that ED will have considerable flexibility to tailor the criteria used in individual discretionary grant competitions. Importantly, the Notice Inviting Applications (NIA) or other funding announcements will become increasingly important. Institutions should not assume that historical grant priorities or selection criteria will remain consistent from one competition to the next.
Evidence Definitions Would Be Revised
The NPRM also proposes revisions to the evidence-related definitions in Part 77, including updated definitions for “strong evidence,” “moderate evidence,” and “promising evidence,” and a new “evidence framework” definition that would allow the ED to rely on approaches beyond the What Works Clearinghouse when evaluating the rigor of evidence.
Federal Register Publication Requirements Would Be Eliminated
The NPRM proposes eliminating the requirements to publish application notices, maximum award amounts, and annual priorities in the Federal Register under §§75.100, 75.104, and 75.105. Instead, such information would be consolidated on Grants.gov. Institutions that currently monitor the Federal Register for funding opportunities should be prepared to adjust their monitoring practices accordingly.
ED Would Require State Grantee Compliance with Executive Orders
The proposal would amend §76.700 to add Executive Orders to the list of authorities with which state grantees must comply when using federal funds. ED describes this as an alignment with §75.700 and says the omission from the 2024 EDGAR amendments was an oversight.
Recent litigation raises questions related to grant conditions
Award Termination based on Policy Priorities
The proposed changes to the grant termination provisions arrives against a significant and ongoing litigation backdrop concerning 2 CFR §200.340(a)(4), the existing government-wide regulation permitting agencies to terminate awards that no longer effectuate “program goals or agency priorities.” Several federal courts have considered whether that provision authorizes termination based on policy priorities identified after an award was made. In July 2026, the US District Court for the District of Massachusetts granted summary judgment to a coalition of 20 states, three governors, and the District of Columbia and held that the government may not use §200.340(a)(4) to cancel grants based on policy priorities identified after the grants were awarded. See State of New Jersey v. US Office of Management and Budget (No. 1:25-cv-11816). That decision aligns with other courts that have read “no longer effectuates” as referring to the goals and priorities in place when the award was made, although other courts—notably the DDC —have read the language more broadly. ED’s proposal to codify express termination-for-convenience authority in its own regulations may therefore reflect an effort to establish a clearer regulatory basis for such terminations, independent of the contested §200.340(a)(4) authority.
Executive Order Compliance
Similarly, the proposed ED rules arrive as courts continue to scrutinize the Administration’s efforts to use federal grant conditions to implement executive orders and policy priorities.
On August 14, 2026, the US District Court for the District of Rhode Island granted summary judgment to plaintiffs in Rhode Island Coalition Against Domestic Violence v. Bondi and vacated challenged grant conditions imposed by the HHS and HUD. The challenged conditions included DEI-related certifications, a Title IX certification incorporating the requirements of Executive Order 14168, a condition relating to abortion, and conditions requiring compliance with executive orders.
The court concluded that the agencies acted arbitrarily and capriciously under the APA for several reasons. Among other things, the court found that the agencies:
- failed to provide a satisfactory explanation for the abrupt imposition of the new conditions beyond reliance on executive orders;
- failed to adequately consider recipients’ reliance interests arising from the prior grant terms; and
- failed to address practical conflicts between the new conditions and existing agency regulations, including HUD regulations requiring covered grantees to provide services in accordance with an individual’s gender identity.
The court vacated the challenged conditions rather than merely enjoining their enforcement against the named plaintiffs. The decision therefore provides an important recent example of a court applying ordinary APA principles to the Administration’s use of grant conditions to implement new policy priorities.[1]
As ED’s proposal is proceeding through notice-and-comment rulemaking, the legal analysis will depend on the final text, statutory authority, and the circumstances of any future challenge. Nevertheless, the Rhode Island decision provides an important counterpoint to the Administration’s position that executive orders and agency discretion can readily serve as the basis for new federal funding conditions.
Looking Ahead
ED states in the NPRM that it expects to finalize the regulations in late 2026, and comments will be due 30 days after publication in the Federal Register.
In conjunction with ongoing initial reviews based on the proposed OMB changes, colleges and universities should consider taking several initial steps:
Review federal funding exposure. Identify significant ED discretionary awards, multiyear projects, continuation awards, and programs that depend heavily on federal funding.
Identify grant-funded activities potentially affected by the new merit and nondiscrimination provisions. This review should extend beyond traditional research administration to federally funded admissions, scholarships, fellowships, student programs, recruitment, outreach, and personnel activities.
Review indirect-cost strategy. Institutions with higher negotiated F&A rates should assess how a competitive preference for lower indirect costs could affect participation in particular ED grant competitions and should quantify the institutional subsidy associated with voluntarily reducing or waiving indirect costs.
Evaluate funding-continuity risk. Identify personnel, subawards, contracts, and other commitments that depend upon continuation of discretionary federal awards.
- The Rhode Island court’s rejection of the grant terms was not the first time the courts have weighed in on this issue in the HHS/HUD context. In Martin Luther King, Jr. Cty., et al. v. Turner, et al., No. 2:25-cv-814 (WD Wash. 2025) and City of Fresno, et al. v. Turner, et al., No. 3:25-cv-7070 (ND Cal. 2025), the district courts in each similarly granted preliminary injunctions—but unlike the Rhode Island case, limited the injunction to the named plaintiffs. The government has appealed those orders, and argument was heard in the first of those appeals at the Ninth Circuit in February 2026. As of the date of this alert, a decision has not yet been issued.
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