On January 27, 2025, a directive was issued by President Donald Trump through the Office of Management and Budget (OMB) to place a temporary hold on all federal loans and grants, commencing January 28, 2025.
The announcement from the White House explained that the pause was needed to reassess federal expenditure and align these funds with the administration’s policy objectives. Critics instantly challenged the move legally, contending it breached the Impoundment Control Act of 1974. This act restricts a president’s power to withhold funds that have been approved by Congress.
The temporary freeze on federal funding, which risked affecting billions of dollars in government aid, was abruptly withdrawn by the Trump administration on January 29, 2025, ending the 48-hour standstill.
Acting OMB Director Matthew J. Vaeth issued the directive, which instructed federal agencies to cease disbursement of financial assistance programs. It specifically targeted initiatives concerned with diversity, equity, and inclusion (DEI), gender identity, and environmental policies.
“The American people elected Donald J. Trump to be President of the United States and gave him a mandate to increase the impact of every federal tax dollar,” Vaeth stated in the memo. “The use of federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”
The directive excluded direct payments to individuals such as Social Security, Medicare, Medicaid, and Supplemental Nutrition Assistance Program (SNAP) benefits. However, the halt could have affected around 20% of total federal expenditure, potentially impacting billions of dollars in assistance to universities, small businesses, and state and local governments.
Immediate Legal Challenges and Temporary Injunction
Twenty-two states and the District of Columbia promptly filed lawsuits against the order, claiming it was unconstitutional. A federal judge temporarily halted the directive’s implementation, preventing any immediate disruption to funding while legal proceedings were set to continue.
Senate Minority Leader Chuck Schumer (D-N.Y.) criticized the freeze, warning it could have wide-ranging impacts. “They say this is only temporary, but no one should believe that,” Schumer stated. “These grants help people in red states and blue states, support families, help parents raise kids, and lead to stronger communities.”
Samuel Bagenstos, former general counsel at OMB, suggested that the administration might be deliberately inviting legal challenges in order to push for a Supreme Court review of the Impoundment Control Act.
Implications for Federal Programs
Entities and agencies that depend on federal grants have voiced concerns regarding the directive. Programs such as Head Start early childhood education, Meals on Wheels for seniors, and various state-administered public infrastructure grants could have been affected by a funding freeze.
Federal agencies were directed to conduct a comprehensive review by February 10, 2025, to ascertain whether their programs are in line with Trump’s executive orders on immigration, foreign aid, environmental agreements, energy policy, and diversity initiatives. However, it remained unclear which programs could ultimately face cuts or reinstatement.
“This is what we were worried about—some enormous, broad thing that would stop funding for huge swaths of the government that he simply doesn’t like and doesn’t agree with,” said Bobby Kogan, senior director of federal budget policy at the Center for American Progress, describing the directive’s scope as unprecedented.
While the White House assured that the pause was temporary, agencies and beneficiaries remained uncertain about when or if their funding would be reinstated. The legal battle over Trump’s authority to halt congressionally approved spending is likely to continue in the coming months, potentially leading to a Supreme Court face-off.
Despite the rescinding of the freeze directive, the administration underlined that its underlying executive orders targeting specific areas of federal spending are still in effect. These include ongoing pauses on foreign aid disbursement and specific clean energy initiatives approved by the Biden administration.
The decision to withdraw the directive came just as a federal judge in Rhode Island was about to consider a request from 22 states and the District of Columbia for a temporary restraining order. This could have imposed more extensive restrictions than the ruling from the D.C. judge.
