The U.S. Department of Education published a proposed rule on August 24, 2026 that would rewrite the legal framework for federal education grants. The rule amends the Education Department General Administrative Regulations (EDGAR) and related provisions in 2 CFR parts 3474 and 3485 and 34 CFR parts 75, 76, 77, and 79. Public comments close September 23, 2026, and the department plans to finalize the regulations in late 2026.
The proposal comes after courts blocked the department's efforts to terminate more than $2 billion in multiyear competitive grants over the previous year and a half.
What the proposed rule would change
Proposed section 75.901 would let the Secretary terminate discretionary awards for convenience, alongside existing grounds such as noncompliance and mutual agreement. The department says this authority mirrors the existing provision at 2 CFR 200.340(a)(4) and the termination-for-convenience clauses in federal procurement regulations.
A related change would restate that approving an application or awarding a grant does not commit the federal government to any additional, supplemental, or continuation award. The department characterizes the language as reflecting existing practices.
The proposal would also allow the Secretary to deobligate funds when a grantee's award, including unspent balances carried forward, exceeds what the grantee needs for the budget period. Continuation decisions could rely on all relevant available information, including the original application and the grantee's past activity.
Under the rule, deciding not to make a continuation award would not count as a withholding under section 455 of the General Education Provisions Act. That change would strip the Office of Hearings and Appeals of jurisdiction over such decisions, reducing the procedural avenues grantees can use to challenge adverse continuation outcomes. Grantees would also lose administrative appeal rights for reduced funding, since those decisions would no longer be classified as withholdings.
The proposal would require grantees, including states distributing formula funds such as Title I, to comply with presidential executive orders in addition to federal statutes and regulations. It also revises section 75.500, which covers constitutional rights, free inquiry, and nondiscrimination obligations.
Finally, the department would stop announcing grant competitions through the Federal Register, moving instead to Grants.gov and other electronic platforms. Officials say the change would lower administrative costs.
A year of terminated grants and court challenges
The rule follows an extended period of conflict over multiyear education grants. In April 2025, hundreds of recipients of School-Based Mental Health and Mental Health Service Professional Demonstration Grant programs received identical notices saying their five-year projects were inconsistent with the federal government's best interests. The department withheld up to $1 billion in mental health grant funding, affecting school programs in at least 16 states. Teacher training grants, services to deafblind students, and full-service community school grants were also affected.
A federal judge in the Western District of Washington ruled the terminations invalid. The court found the department had not provided individualized explanations for ending each grant and had not told recipients it had set new policy priorities. The court concluded that nothing in the existing regulatory scheme supports discontinuing multiyear grants whenever the political will to do so arises, and issued a permanent injunction requiring new continuation decisions.
After the department made new decisions in June 2025, it told states and the court it planned to terminate some or all of the grants again, prompting 15 states to file a fresh lawsuit. Attorney commentary in Education Week and K-12 Dive says the proposed rule would remove the legal tools grantees have successfully used in those challenges, since grantee agreements would be treated as contractual and termination would be available for essentially any reason.
A government-wide push to expand termination authority
The Education Department's move mirrors broader federal efforts. On August 7, 2025, the White House issued an executive order on improving oversight of federal grantmaking that directed OMB to revise the Uniform Guidance in 2 CFR Part 200 to require that all discretionary grants permit termination for convenience, including when an award no longer advances agency priorities or the national interest. The order applied government-wide and directed agencies to revise existing terms and conditions to allow immediate termination. OMB subsequently proposed regulations that would give political appointees new power to intervene in ongoing awards.
Under the current Uniform Guidance provision at 2 CFR 200.340(a)(4), an agency may terminate an award that no longer effectuates the program goals or agency priorities. Legal analysis from McDermott Will & Emery notes that the provision carries at least three limits: the award terms must provide for termination, the termination must be authorized by law, and a finding must exist that the award no longer effectuates program goals. Critics argue the provision does not let the government shift its priorities and then terminate grants based on the new priorities. The proposed Education Department rule would codify a broader standard and remove those limitations for its grantees.
Similar tactics have appeared across other agencies under the current administration. The Department of Energy, the National Institutes of Health, and others have invoked 2 CFR 200.340(a)(4) to end grants en masse based on conclusions that the grants no longer serve new administration priorities, drawing numerous lawsuits. The Energy Department also imposed a 15 percent indirect cost rate cap, a move that the August 2025 executive order arguably superseded by directing agencies to prefer institutions with lower indirect cost rates.
What the evidence shows about the rule's likely impact
The department's own Regulatory Impact Analysis projects net annualized benefits of $186,363 over 10 years, or $1,589,716 at a 3 percent discount rate. Most of the savings come from reduced grant application preparation, estimated at two fewer hours per applicant for 866 applicants. The department also estimates annual cost transfers of $45,038,500 over 10 years.
The legal basis for the rule remains contested. McDermott Will & Emery's analysis argues that the executive order's own acknowledgment that current Uniform Guidance rules are at best ambiguous undercuts the government's expansive reading of existing terms. Under settled contract principles, ambiguities in terms drafted by the government are resolved against the government, which would favor recipients challenging termination under current regulations. That analysis says the legal foundation for the proposed approach is not settled.
The court record from the Western District of Washington shows the current EDGAR and GEPA framework gives grantees viable legal challenges to termination. The proposed rule would modify exactly that framework, shifting the dispute from whether the department followed its own rules to whether it can rewrite them.