New Executive Order Reshapes Federal Grantmaking: Opportunities and Challenges for Awardees

On August 7, 2025, the White House released Executive Order 14332, "Improving Oversight of Federal Grantmaking." This executive order addresses concerns surrounding the use of federal grants, focusing on what it describes as "offensive" and "problematic" projects that promote “anti-American” values and that lack sufficient government oversight and "social utility." It highlights areas such as diversity, equity, and inclusion (DEI) programs, free services for illegal immigrants, social media censorship tools, funding facilities, and administrative costs over actual research. Criticizing the existing grantmaking landscape—specifically at leading higher education research institutions—as overly wasteful and complex, the executive order mandates reforms across federal agencies that have the statutory authority to offer, award, or manage grants. These changes introduce both opportunities and risks for institutions of higher education (IHEs) seeking to secure or maintain federal funding.  

I. New Restrictions on Discretionary Funding

Under Executive Order 14322, federal agencies are directed to halt the announcement of any new discretionary grant opportunities until they implement updated funding review processes. Specifically, the order directs agencies to designate senior appointees to oversee changes and adopt the following practices:

• Ensure funding announcements are written in plain language and include only necessary requirements.
• Collaborate with the Office of Management and Budget (OMB) to standardize processes.
• Coordinate across agencies to avoid duplicative or overlapping grant programs.
• Engage subject matter experts to review scientific research grants.
• Review grant applications for alignment with agency priorities, national interests, and applicable law, both at a pre-issuance and on an annual basis.

Additionally, the order includes several principles that senior appointees must incorporate into their new grant review processes. Specifically, discretionary awards must conform to the following principles:  

• "Demonstrably advance the President's policy priorities."
• Prioritize institutions with lower indirect cost rates. Institutions that reduce the percentage of funds allocated for administrative or overhead costs (commonly referred to as indirect cost rates) will be given preference under the order, emphasizing cost efficiency in the use of federal grants.
• Adhere to "Gold Standard Science," focusing on scientifically rigorous research that includes transparency and reproducibility.¹
• Prioritize institutions that have a commitment to "rigorous, reproducible scholarship" over an institution's "historical reputation or perceived prestige."
• Include measurable benchmarks to monitor success and progress.
• Exclude funding or support to programs or research that:
  • Promotes racial preferences or racial discrimination.
  • Denies biological sex as binary or immutable.
  • Supports illegal immigration.
  • "Compromise[s] public safety or promote anti-American values."

The order emphasizes that peer review processes may still be used for evaluations but warns that senior appointees and agencies must consider peer recommendations as advisory, and not "routinely defer" to or treat them as "de facto binding."

II. Expanded Termination Powers for Federal Agencies

The executive order directs agencies to ensure that the terms and conditions of both existing and future discretionary grants significantly expand agencies' ability to immediately terminate the grants "for convenience." Grants may now be ended "if the award no longer advances agency priorities or the national interest" (emphasis added), even if previously approved.

The order also introduces new requirements for recipients:

• Agencies are also required to add language in future discretionary grant agreements that "prohibit recipients from directly drawing down general grant funds for specific projects without the affirmative authorization of the agency."
• "Require grantees to provide written explanations or support, with specificity, for requests for each drawdown."

The new terms are likely to introduce additional complexity and uncertainty for funding recipients regarding the viability of funded projects throughout the lifetime of a discretionary grant. Institutions must now navigate tighter scrutiny in funding drawdowns, as well as the potential terminations under the administration’s evolving priorities. These changes stem from legal challenges to grant terminations, in which plaintiffs argued that the terminations exceeded prior agency authority. Grant terminations continue to be subject to litigation and may no longer be viable if this expanded convenience language were to be included in governing regulations. By including explicit "termination for convenience" clauses in future agreements, as envisioned by this executive order, agencies may avoid similar legal disputes, significantly altering the risk profile for grantees. IHEs dependent on federal research funding will need to navigate these heightened uncertainties around compliance, oversight, and grant longevity.

High-Level Takeaways 

The executive order significantly expands agency discretion and oversight in the grant review process, which is expected to result in political gatekeeping on future awards and renewals and greater uncertainty for IHEs—particularly for leading research institutions such as R1 and R2 universities² that have historically relied on discretionary grants as a stable funding source. Conversely, it may create and broaden funding opportunities for IHEs that traditionally receive less funding in research and development or lack name-brand recognition in comparison to leading research institutions (those that the order suggests may have traditionally received funding based in part on their "historical reputation or perceived prestige").

For all IHEs, several actionable key takeaways emerge from this order:

1. Document and Justify Research Appropriately: Current and aspiring recipient institutions should be prepared to continually document and justify to awarding agencies the importance and appropriateness of their research and how their projects advance the administration’s stated policy priorities at every stage of the award lifecycle—from initial application through renewal and post-award monitoring. Since agency designees will be exercising more independent judgment and deferring less to industry experts and peer reviewers, researchers should also emphasize how their work aligns with the administration’s policy priorities and Gold Standard Science, including transparency, reproducibility, and measurable benchmarks and outcomes.  
2. Conduct Risk Assessments: IHEs should conduct thorough audits of existing grant agreements and ongoing research projects to identify areas that could present risks based on this new guidance. Specifically, institutions should examine the degree to which these projects may be perceived as advancing "anti-American values" as articulated in the order and consider mitigation steps to proactively address potential scrutiny.
3. Reassess Indirect Cost Rates: Given the directive to prioritize institutions with lower indirect cost rates, IHEs should consider proposing reduced rates in future applications where feasible—particularly if other stable revenue streams are available to cover their indirect, administrative, overhead, and facility costs. Doing so may also improve competitiveness in the new grant evaluation landscape.

Finally, institutions must closely monitor changes to grant terms and conditions, particularly around termination for convenience and drawdown requirements, which may significantly impact long-term funding stability.

Institutions seeking to navigate these developments or anticipate how they might affect current or future funding opportunities should consult with Steptoe’s Education practice. For additional updates on these and related topics, we encourage you to follow our Education Publications page for ongoing insights.

¹ See Executive Order 14303 "Restoring Gold Standard Science," issued May 23, 2025.

²See Carnegie Classification of Institutions of Higher Education, https://carnegieclassifications.acenet.edu/news/carnegie-classifications-release-2025-research-activity-designations-debut-updated-methodology/.