Federal-State Funding Standoff Puts California Universities in Political Crossfire
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USC caught between Trump administration’s conservative policy compact offering federal funding priority and Governor Newsom’s threat to eliminate state scholarships, forcing universities to choose sides in partisan funding battle over academic freedom and campus culture.
The Federal-State Collision
The University of Southern California finds itself caught between competing political demands as Governor Gavin Newsom threatens to eliminate state scholarships if the university signs onto a Trump administration compact offering preferential federal funding in exchange for sweeping policy changes.
USC was the only California institution among nine universities nationally that received the Trump administration’s “Compact for Academic Excellence in Higher Education” on October 1, 2025. The 10-page agreement promises priority access to federal research grants and White House engagement in exchange for adopting conservative policy reforms across admissions, campus culture, and academic operations.
The compact requires participating universities to eliminate race and gender considerations in admissions and hiring, cap international undergraduate enrollment at 15 percent with no more than 5 percent from any single country, require standardized test scores for all applicants, and freeze tuition for five years. Universities must also “transform or abolish” academic departments that “purposefully punish, belittle, or spark violence against conservative ideas.”
What the Compact Demands
For USC, where 26 percent of fall 2025 freshmen are international students, the enrollment caps alone would require dramatic restructuring. The compact also mandates that universities with endowments exceeding $2 billion per undergraduate provide free tuition for students pursuing hard sciences, redirecting institutional resources toward specific academic priorities determined by the federal government.
Education Secretary Linda McMahon, White House Domestic Policy Council Director Vince Haley, and Senior Adviser May Mailman signed the compact letter, describing it as “an opportunity for the proactive improvement of higher education for the betterment of the country.” Mailman told The Wall Street Journal the nine selected universities were chosen because “they have a president who is a reformer or a board that has really indicated they are committed to a higher-quality education.”
Universities that sign would receive “substantial and meaningful federal grants” and “allowance for increased overhead payments where feasible,” according to the letter. Non-signing institutions remain eligible for existing federal funding but forfeit priority consideration and White House access. The compact requires participating institutions to hire external auditors to conduct annual anonymous polling of faculty, students, and staff on compliance, with results reviewed by the Department of Justice.
How the MSM Has Misled
Multiple Outlets: Headlines like "Newsom Threatens California Universities" frame the governor as the aggressor while obscuring that he's responding to federal coercion. This makes it seem like Newsom is creating conflict rather than reacting to Trump administration pressure forcing universities to choose between federal and state funding.
Governor Newsom's Statement: Claims he can cut funding "INSTANTLY" without explaining he lacks unilateral authority to do so. State budget changes require legislative approval and typically take months, with the next budget cycle not until June 2026. Reporters quoted this dramatic claim without fact-checking the governor's actual power.
The Hill, SF Chronicle, Others: Stories emphasize USC's $28.4 million in Cal Grants to dramatize stakes, but fail to note USC is the ONLY California school that received the compact. This misleadingly suggests Newsom's threat affects all California universities when it primarily targets one private institution.
CalMatters, Washington Post: Coverage describes compact requirements for "priority access" and "preferential treatment" without clarifying non-signing schools still receive ALL existing federal funding. This creates the false impression that refusing the compact means losing federal money entirely, making it sound more coercive than reality.
Multiple Sources: Stories lead with Newsom's characterizations ("hostile takeover," "radical agreement," "sell out") as framing before presenting what the compact actually requires. This adopts his political language and predisposes readers to view the compact negatively before understanding its contents.
Newsom’s Counter-Threat and Its Limitations
Hours after the compact became public, Governor Newsom issued an all-caps statement mimicking President Trump’s social media style: “IF ANY CALIFORNIA UNIVERSITY SIGNS THIS RADICAL AGREEMENT, THEY’LL LOSE BILLIONS IN STATE FUNDING — INCLUDING CAL GRANTS — INSTANTLY. CALIFORNIA WILL NOT BANKROLL SCHOOLS THAT SELL OUT THEIR STUDENTS, PROFESSORS, RESEARCHERS, AND SURRENDER ACADEMIC FREEDOM.”
However, Newsom’s ability to implement such threats faces practical constraints. State funding flows through budgets that require legislative approval, a process typically taking months. The current budget allocates $45 billion to California colleges and universities, including nearly $3 billion for Cal Grants. The next budget cycle doesn’t begin until June 2026.
USC received $28.4 million in Cal Grant funding during 2024-25, covering financial aid for 3,198 students. These grants support individual students rather than the university directly, meaning Newsom’s threatened cuts would impact student financial aid rather than institutional operations. This creates a situation where students become collateral damage in a political dispute between state and federal governments.
Implications for Universities and Students
The compact creates direct conflicts with California state law. Since 2013, California’s AB 1266 has required K-12 schools to allow transgender students access to facilities matching their gender identity, reflecting broader state policy that the compact’s transgender exclusion requirements would contradict. California has also prohibited race-based admissions at public universities since 1996, and the Supreme Court’s 2023 decision extended that prohibition to private institutions nationwide.
For USC students, the political standoff creates immediate uncertainty about financial aid. Cal Grant recipients rely on these funds to make attendance affordable, and eliminating this support would disproportionately impact middle and lower-income California residents. The compact’s international student caps would reshape USC’s community and revenue model, as international students typically pay full tuition that subsidizes financial aid for domestic students.
Academic organizations continue mobilizing opposition. American Association of University Professors President Todd Wolfson condemned the compact as “favoritism, patronage, and bribery in exchange for allegiance to a partisan ideological agenda.” The American Council on Education called it a “power play designed to divide the higher education community.” Meanwhile, University of Texas Board of Regents Chairman Kevin Eltife declared his institution “honoured” to be selected and said officials would “enthusiastically” review the agreement, showing some university leadership receptive to the terms.
USC President Carol Folt has not publicly commented on whether the university will sign the compact. The university faces a choice between potential federal funding advantages and certain state scholarship losses, with students caught in the middle of a partisan battle over academic freedom, campus culture, and the appropriate limits of government influence on higher education.
