Higher Ed IT Budgets Face a Dual Threat: Federal Research Cuts and State Funding Pressure

NIH and NSF Funding Cuts Are Hitting Higher Ed IT From Every Direction

This announcement and its possible implications aren’t the only issues higher ed is facing. The dual budget crisis is compounded by state funding cuts and the long-feared enrollment cliff deficits arriving simultaneously.

Hiring freezes, competition with private sector salaries to retain talent, and the struggle to balance infrastructure and network modernization with depleted budgets and lean staffing are just a few of the difficulties higher ed IT leadership are already dealing with.

“Roughly speaking, IT organizations are somewhere in the neighborhood of 5% of the total budget of the university,” says John Rathje, a CDW strategist and former vice president and CIO of Kent State University. “Let's say we have a $100 million budget. That means IT has $5 million. And if IT can save 10%, that means IT saves half a million dollars. What about the other 95%?”

On April 30, Kent State University President Todd Diacon announced the layoffs of 45 employees to help offset a projected $18 million shortfall for the Ohio university.

State funding for higher ed nationally saw a 4% increase in 2025 — which is just 2% when adjusted for inflation — with 17 states seeing a decrease from the previous year, according to the National Education Association’s NEA Higher Ed State Funding Report.

Due to a significant decline in out-of-state, first-year student enrollment, University of Oregon President Karl Scholz announced in May that the institution would need to cut $65 million from its budget, beyond last year’s $30 million cut. He noted in an announcement to faculty that “roughly 80 percent of our Education & General Fund budget comes from tuition revenue.”

“I believe we are now at a crossroads. We could take smaller steps matching short-run expenses with revenues. But with smaller actions, we would have little confidence that we would not have to make another round of cuts next year,” Scholz noted. “The university community has gone through budget cuts multiple times in recent years. That is a dynamic that produces a great deal of pain while failing to produce clear, long-term solutions to address root causes.”

Facing a projected $1.5 billion state budget shortfall, the Board of Governors of the Colorado State University System announced that it had approved a systemwide strategy to keep tuition levels low for its students — a challenging balancing act with rising mandatory costs.

“Colorado’s fiscal reality is requiring thoughtful and often difficult choices across higher education, and our campuses are no different,” said Chancellor Tony Frank in a CSU announcement. “We appreciate the state’s continued investment and choice to keep tuition increases modest, although flat funding in the face of rising costs still presents real challenges. In addition, uncertainty around federal research support is constraining institutions to plan conservatively while staying focused on our core mission of access, student success, and impact for the state.”

How Federal Research Funding Cuts Are Straining University IT Infrastructure

Large institutions usually run separate IT operations for administrative functions and research computing, with the research side serving the scientific mission, federal compliance requirements and other needs. Typically, research computing labs have built stand-alone, localized infrastructure funded largely by huge federal grants.

With agencies capping critical Facilities & Administrative indirect cost reimbursements at 15% (down from historical 60% averages), universities are losing tens of millions of dollars annually.

“There are formulas that take a single pie and start slicing that pie up, so that pie typically never gets bigger,” says Rathje. “However, external forces do get bigger, so the cost of goods and labor continues to rise.”

The bottom line: Regardless of where the cuts originated, higher education leadership and IT teams will have to confront the shortfall.

“Staffing has been impacted most in the research area for the larger research institutions,” says Barajas-Murphy. “But now we’re going to see if that the funding for facilities, research centers — things that are on campuses — is going to shift, and by how much.”

Rightsizing Cloud and HPC When Funding Disappears

“I think the big thing is to know what you’re trying to deliver to the mission,” says Rathje. “And then have the right set of tools — not three sets of tools. That’s part one. Part two is to architect those tools in a way that gives the university the capability to improve its outcomes and perhaps generate revenue through scale. The tools could also be used to maybe reduce cost, friction and waste within the organization.”

University IT leaders are now charged with identifying which high-computing environments will be most impacted by the lack of grant support — while cloud spending continues to outpace university tuition growth — and examining how turning to FinOps might help them merge research metadata with fiscal data to create centralized governance models. 

Some universities are already experiencing the impact of rightsizing. Johns Hopkins University has historically been the largest recipient of federal research funding among U.S. universities. The Baltimore institution laid off more than 100 employees in June after its federal research portfolio dropped by more than $500 million last year, as “these downward trends have continued unabated” into 2026, President Ron Daniels said in a message to the university community.

“As our federal research portfolio shrinks, the infrastructure around it must change in parallel,” a university spokesperson shared with press.

EXPLORE: Data-driven spending decisions improve efficiency for higher ed IT teams.

This pattern is playing out at research institutions across the country. In a May video address, Massachusetts Institute of Technology President Sally Kornbluth said the funding picture is still concerning even after Congress partially restored agency budgets. 

“Compared to this time last year, MIT has experienced a decline in campus research activity funded by federal awards of more than 20%,” says Kornbluth.

Considering all funding sources, sponsored research activity at MIT is now 10% less than a year ago, and new graduate student enrollments (outside of the institution’s business school and an engineering program) are down by nearly 20% for next year.

Managed Services as a Budget Bridge

“Managed services could become a very foundational part of an organization’s response, allowing them to focus on best values for their labor investments,” says Rathje. “Rather than having a team member for everything that they do, maybe they focus their teams on the real value-add items, and they look to a managed service to cover other things and do some cost predictability around that.”

Modernization is still top of mind with most higher ed IT leaders, with 92% of respondents to a 2025 EDUCAUSE QuickPoll reporting that their institution is either considering modernization or has already modernized some systems.

“However, the path to data modernization in higher education is complex, with only 1% of respondents indicating they feel their institution has fully modernized its data management and strategy,” the report states. 

One option when roles tied to grants disappear: Universities can turn to creative solutions with managed services and their vendors to keep research systems running while rebuilding internal capacity.

DISCOVER: Cost-effective risk management approaches for your higher ed IT team.

“Forward-looking CIO and senior IT leaders who are making these purchasing decisions are looking at the purchasing process to implement things like staff augmentation, inclusive of a training component,” says Barajas-Murphy. “From the conversations I’m seeing, CIOs increasingly are looking at procurement and purchasing and considering such questions as, how can we nest-in training?”

Some CIOs are already looking at how to embed these solutions into their procurement processes through staff augmentation.

The dual-budget pressure of the OSTP announcement, along with enrollment declines and the state funding picture, isn’t a storm to wait out. The federal funding model is changing structurally, and the higher ed institutions that get ahead of it will be the ones who include IT leadership at the table as part of the solution to help streamline overall institutional operations and to act as an income and optimization multiplier.

“IT plays a big part, but it's not just about IT being more efficient costwise,” says Rathje. “IT needs to be in a position to help the rest of the university generate more revenue and be more efficient with costs.”