What the 2026 U.S. midterm elections could mean for nonprofits and education

With the 2026 U.S. midterm elections approaching, RSM is looking at the economic stakes and the key issues for various industries. This article is one part of that series.

Introduction

The outcome of the 2026 U.S. midterm elections will help shape the policy landscape facing U.S. businesses through the remainder of the decade. Changes in congressional control, oversight priorities and state-level policymaking could influence everything from taxes and funding to regulation, workforce issues and investment decisions. 

Here’s a look at the implications for nonprofits and education.

The top issue for nonprofits and education

Federal funding volatility is the single issue most likely to affect nonprofits and education strategy, economics and operations. Nonprofits have faced repeated grant disruptions, delayed appropriations and proposed changes to government-wide grant rules. For nonprofits, exposure is greatest among health and human services providers, research organizations, food banks and others dependent on federal grants, contracts or pass-through awards. For colleges and universities, appropriations, research funding and student aid directly affect access, enrollment and institutional budgets. 

In the near term, stopgap funding, grant administration and court challenges may create cash-flow and compliance pressure. Longer term, congressional control will influence whether funding levels stabilize, oversight intensifies and agencies gain broader discretion over how awards are made, administered or terminated.  Proposed grant-rule changes could affect campus internal controls, procurement, payroll, systems, audits and the administrative cost of programs.  

For nonprofits and higher education institutions, one of the most consequential policy issues of this election cycle is the future of tax-exempt status and the requirements attached to it. Proposed federal regulations would condition 501(c)(3) tax-exempt status for private educational institutions on compliance with expanded nondiscrimination requirements covering admissions, scholarships, financial aid, athletics and other school-supported programs. If finalized, the changes could affect as many as 18,000 private educational institutions and approximately 750,000 students receiving or eligible for scholarships allocated using racial, ethnic or national-identity criteria. The issue could create broader implications for institutional governance, compliance, donor restrictions, fundraising, financial aid and long-term strategic planning

Implications for future legislation

Control of Congress will determine whether nonprofit and education policy advances primarily through legislation, appropriations or oversight. Unified Republican control could reinforce current priorities, including tighter grant administration, changes to student borrowing and greater scrutiny of tax-exempt organizations, higher education and foreign funding. Even then, narrow margins and competing fiscal priorities could keep annual appropriations difficult. 

Under divided government, major policy reversals would be less likely, but funding negotiations, must-pass bills and committee investigations could become the main channels for change. Oversight could focus on the Treasury Department and IRS, the Department of Education, the Department of Labor, and the Office of Management and Budget. 

State and local outcomes will matter as well, particularly where states may absorb new costs, respond to federal funding reductions or adopt divergent rules affecting higher education, charitable activity and program delivery. Industry leaders should assess not only how much federal support will be available, but also when funds will arrive, what conditions will apply and how quickly policy can shift through agency action or litigation.

Other top issues for nonprofits and education

Tax and exempt-organization policy will remain a significant second-tier issue. Lawmakers may revisit reporting on foreign donations and fiscal sponsorships, while enforcement attention could remain focused on political activity, public-safety concerns and compliance by large organizations. Colleges and universities also face the new tiered excise tax on net investment income, effective for tax years beginning after Dec. 31, 2025, which may alter budgeting, investment and spending decisions for affected institutions.

Student access and affordability are another pressure point. Changes beginning July 1, 2026, eliminate Grad PLUS for new borrowers. These are federal loans that help graduate and professional students finance education costs beyond standard federal borrowing limits. The changes also impose graduate, professional and parent borrowing caps, and reshape repayment options. These developments could affect graduate enrollment, program mix, institutional aid and bad-debt risk. 

Other issues to watch include funding and eligibility for Pell Grants and campus-based aid, research security and foreign-funding disclosures, accreditation, and program-level accountability. For nonprofits serving various populations, the Farm, Food and National Security Act of 2026 and the Supplemental Nutrition Assistance Program (SNAP) remain especially important because reduced benefits and state cost sharing can increase demand for food banks and human services while pressuring public funding sources.

Proposed accreditation reforms could give institutions greater flexibility to change accreditors while introducing new requirements and compliance costs. Institutions should evaluate how rule changes could affect accreditation strategy, governance, program review and continued eligibility for federal student aid.  

Immigration and visa policy changes could affect international enrollment, graduate programs and the talent pipeline.  

Workforce shortages, rising labor costs and increasing demand for services continue to pressure nonprofit organizations. Many nonprofits and education organizations are exploring artificial intelligence and automation to improve productivity, reduce administrative burden, and support service delivery and mission. Future federal and state policy developments may influence the pace and manner of adoption.  

Philanthropy and donor behavior may evolve as changes to charitable deductions can affect fundraising and endowment support.  

By the numbers

A July 2026 federal court decision reinstated funding for 1,180 active grants, totaling roughly $5.4 billion across 23 states. The decision shows why grant termination standards and agency discretion are central operating issues for federally funded nonprofits and educational institutions.  

What middle market businesses should consider now

• Model funding scenarios that include delayed appropriations, award terminations, lower reimbursement or indirect-cost recovery, and state pass-through changes.
• Stress test liquidity and covenant capacity against payment delays, enrollment shifts and higher demand for subsidized services.
• Map exposure by agency, program, award term and state, including renewal dates, termination clauses, compliance conditions and concentration by funding source.
• Review graduate enrollment, institutional aid and pricing assumptions in light of new federal borrowing limits and repayment changes.
• Document grant compliance, indirect-cost support and mission alignment. Assign owners to monitor appropriations, agency rules, litigation and state implementation.