Court blocks Trump's plan to freeze federal grants and loans

A federal judge blocked US President Donald Trump’s plan to freeze hundreds of billions of dollars in payments to federal programmes just minutes before it was set to take effect on Tuesday, capping a day of US political chaos less than two weeks into Trump's second term in office.

Loren AliKhan, a judge in the Washington, DC, district court, temporarily halted part of the Trump White House’s order to pause federal financial assistance, according to US media reports, and ordered the funding to continue until a hearing on February 3.

The judge’s decision came after hours of confusion, recrimination and panic around the country as recipients of federal loans and grants — including medical programmes for the poor and elderly — grappled with the scale of the president’s sweeping order to halt the assistance.

As a backlash to Trump’s impending freeze built in Republican and Democratic states on Tuesday, the White House scrambled to clarify its message and contain the fallout, saying the scope of disruption would be narrower than feared.

AliKhan’s judicial intervention was a response to a lawsuit filed by advocacy groups, including the American Public Health Association, which sought a temporary restraining order until the court had assessed the alleged “illegality” of the Trump freeze.  

The plan would have a “devastating impact on hundreds of thousands of grant recipients... to fulfil their missions, pay their employees, pay their rent”, the groups said in their lawsuit.

The White House did not immediately respond to a request for comment on AliKhan’s order.

The freeze on federal financial assistance was intended to give the White House time to align the grants and loans with Trump’s conservative agenda.

But it triggered a broad explosion of bipartisan confusion and opposition, as politicians from both parties assessed the scale of the potential funding hit on scientific and medical research, and communities that depend heavily on federal support.

All 50 US states receive federal grants, which accounted for 36.4 per cent, or $1.1tn, of their combined revenue in fiscal 2022, according to the Pew Research Center.

State officials throughout the country, including Republicans, sought clarity and flexibility from the administration in the review.

Louisiana’s Republican governor Jeff Landry urged the OMB to “develop a responsible runway to untangle us from any unnecessary and egregious policies without jeopardising the financial stability of the state”.

More than 50 per cent of Louisiana’s revenue came from federal funds in fiscal year 2022 — more than for any other state, according to Pew.

In a second clarifying memo on Tuesday afternoon, the White House said that social programmes such as Medicaid, the health insurance scheme for low-income Americans, and food-assistance programme Snap, would not be paused.

The memo also added that funds would not be frozen for other important schemes such as those supporting small businesses, farmers and undergraduate students. Social Security and Medicare, the government healthcare plan for older people, would also be untouched, the administration clarified.

Democrats blasted the proposed freeze as an illegal power grab by the president and warned that it would potentially harm the US economy.

“Freezing federal funding that has already been allocated by Congress is unconstitutional; above all else, it’s inhumane,” said Dick Durbin, the Democratic senator from Illinois. 

Two senior Democrats, Patty Murray and Rosa DeLauro, wrote to Matthew Vaeth, acting director of the Office of Management and Budget, saying: “The scope of what you are ordering is breathtaking, unprecedented, and will have devastating consequences across the country.”

A group of 23 state attorneys-general led by California and New York said they would file a separate lawsuit seeking to block the plan.

The online Medicaid portal used by states stopped working on Tuesday, which the White House said it was aware of. Karoline Leavitt, White House press secretary, said on X that “no payments have been affected”.

Tuesday’s move by the president came after he ordered a halt to funding for clean energy projects and virtually all foreign aid.

In the first memo ordering the freeze, the administration told agencies to submit information about their grants and loans to the White House by February 10, leaving many programmes in limbo until at least then.

The administration said the US spent $3tn in the 2024 fiscal year on federal financial assistance, but it is unclear how much of that would ultimately be cut.

A radical revamp of the federal government has long been sought by Russell Vought, the president’s pick to be White House budget director, and the authors of Project 2025, a blueprint for the incoming Republican administration assembled in recent years by the Heritage Foundation, a conservative think-tank.

Trump distanced himself from Project 2025 during the election campaign against Joe Biden and Kamala Harris last year, since many of its prescriptions were too controversial, but some of its policies are appearing in his first executive actions.