EdLines from Washington: Tracking Federal Policy and Its Impact on Minnesota

By Madie Spartz

Author’s note: Changes and developments within the federal government are moving quickly. The information in this blog is accurate as of July 16, 2025.

U.S. Department of Education Withholding Education Funds

On July 1st, the Department of Education sent an abrupt and unanticipated notice to states and school districts across the country that it was withholding nearly $7 billion in education funding–-dollars that Congress had already approved and the President signed in March. Much like a regular paycheck helps individual families plan their monthly budgets, states and districts count on the regular disbursement of federal funds to pay for programming, teacher salaries, classroom materials, and much more. 

The Department of Education informed states of the fund withholding just one day before they were scheduled to be disbursed. Federal education funds work in streams, meaning certain dollars are allocated for specific purposes. The withheld funds had been approved for the following services:

• Migrant education
• English learner services
• Professional development for teachers 
• Academic enrichment
• Before- and after-school programs
• Adult basic education and literacy

The Impact On MN Schools

In Minnesota, this translates to $74 million that districts across the state had already built into their budgets. One analysis estimates that Minneapolis and St. Paul Public Schools stand to lose the most funding at roughly $4.5 million each. The Superintendent of St. Paul Public Schools told a local news outlet that over $7 million in federal funds are currently frozen. Based on the funding streams that were halted, students from low-income families are more affected by the loss of these funds; districts serving high-poverty areas will lose five times as much funding as lower-poverty districts. Furthermore, English learners and students of color also stand to lose more resources, based on census data and the structure of these cuts. 

It’s worth noting that the Trump Administration proposed eliminating all of the now-frozen funding streams in its 2026 budget proposal, which has not yet been taken up by Congress. The withholding of these funds on July 1st represents an effective implementation of this budget proposal one year early, without Congressional approval.

The Big ____ Bill

Congress recently passed a budget reconciliation package, that was then signed by the President on July 4th. While major changes to Medicaid, SNAP benefits, immigration enforcement, and tax policy have drawn the most media coverage, the bill makes significant changes to education as well. Some of the most notable changes include:

• • K-12: The bill makes a few changes that will impact K-12 education, the most notable focusing on school choice. Other elements of the bill will have an indirect impact on K-12 expenses and services, and support for students.
    • School Choice Tax Credit: The bill creates a tax credit for individuals who donate to organizations that grant scholarships for private school tuition and other non-public educational programs—an indirect way of incentivizing access to private schools. The tax credit maxes out at $1,700 for individuals, but there is no cap on total spending, meaning the federal government will pay for every individual who claims the credit on their return. The program requires states to opt-in, and it’s not clear yet what this will look like, if Minnesota will opt in.
    • Medicaid cuts impacting children and schools: While the fallout of the sweeping Medicaid cuts remains to be seen, there are several ways they could negatively impact children. Most directly, fewer children will have health insurance; before the cuts, half of the nation’s children were insured through Medicaid or the Children’s Health Insurance Program. Furthermore, Medicaid pays for $7.5 billion annually for in-school services, such as school nurses or therapies and equipment for students with disabilities. An indirect effect of Medicaid cuts will come from state governments, who will be forced to re-balance their budgets in the face of less federal funding. This could take the form of Medicaid cuts, reducing funding in other areas to supplement Medicaid, or both. The Minnesota legislature has already indicated that cuts to public education are on the horizon– and that was before these sweeping Medicaid cuts. 
  • Post-Secondary
    • Pell Grant changes: Short-term workforce training programs are now eligible for Pell Grants, the federal government’s grant program for tuition assistance for low-income students. Pell funds may only be used at accredited institutions (a prior version of the bill would have allowed unaccredited institutions to accept the federal funds.)
    • Changes to student loans: This bill eliminates the Grad PLUS student loan program, which allowed students to borrow the full cost of attendance for graduate school. It also sets limits on how much individuals can borrow for graduate and professional education. For most graduate programs, the lifetime borrowing limit will be $100,000. For professional degrees, such as medicine or law, the lifetime borrowing cap is $200,000. This raises concerns about how students from low- or middle-income backgrounds will access medical school in particular, given the long length and associated high costs of schooling for medical programs. The bill also ends existing student loan repayment plans and replaces them with two options: a standard repayment plan and an income-based repayment option. 
    • “Gainful employment” standard for universities: In order to remain eligible for federal student aid, universities must now meet specific earnings-to-debt ratios for their degree programs. Both undergraduate and graduate programs will be assessed on the earnings of their graduates. If a program fails to meet its established earnings-to-debt ratio for two years in a row, it will lose the ability to participate in federal student aid programs.