A Judge Just Vacated the Directive That Killed 104 of 109 Teacher-Training Grants. Your Money Still Is Not Coming Back Automatically.

The most consequential grants ruling of the month is also the most easily misread. On September 17, 2026, U.S. District Judge Angel Kelley, in State of California et al. v. U.S. Department of Education, No. 25-cv-10548-AK (D. Mass.), vacated the Education Department's February 5, 2025 internal directive in its entirety and declared it unlawful.

That directive — titled "Eliminating Discrimination and Fraud in Department Grant Awards" and signed by then-Acting Secretary Denise Carter — is the instrument that led to the termination of 104 of 109 active grants under the Teacher Quality Partnership (TQP) and Supporting Effective Educator Development (SEED) programs, cutting more than $600 million. That is better than 95 percent of both programs' active portfolios. In the eight plaintiff states alone, more than 40 active grants totaling over $250 million were at stake.

The court declined to limit relief to the plaintiff states. The vacatur applies government-wide.

And yet almost no terminated grantee will get a wire transfer because of this ruling. Understanding why is the difference between a legal strategy and a press release.

What the Court Actually Held

The February 2025 directive instructed Department personnel to review and terminate grants deemed inconsistent with administration priorities, flagging DEI-adjacent subject matter — cultural responsiveness, anti-racism, social-emotional learning — as the trigger. Critically, per the court's reading, the directive did not define "DEI" and did not provide examples of prohibited activities. It named a category and delegated the sorting.

Judge Kelley found the directive arbitrary and capricious under the Administrative Procedure Act on four independent grounds, and separately contrary to law on three:

1. Contrary to the governing grant statutes. TQP and SEED are statutory programs with congressionally specified purposes. An internal memo cannot narrow what Congress funded.
2. Contrary to the General Education Provisions Act's notice-and-comment requirement. GEPA imposes rulemaking obligations on Education Department policy of general applicability. The Department issued the directive as an internal memorandum and skipped the process.
3. Contrary to Uniform Guidance limits on post-award termination. This is the holding with the longest reach — the court read 2 CFR 200.340's constraints on when an agency may terminate an award as a real limit, not a formality.

The opinion also faulted the directive's "hasty implementation," and Judge Kelley expressed serious doubts about the Department's choice to adopt it at all. The Department's press secretary, Savannah Newhouse, responded that taxpayer dollars should support preparing teachers and expanding the teacher pipeline, "not funding divisive ideology or racial preferences." As of September 21 the Department had not said whether it would appeal.

The Jurisdictional Split Is the Whole Story

Here is the sentence that terminated grantees need to internalize: vacating the directive is not the same as restoring the grants.

Federal grant litigation runs on a split that trips up nearly everyone who encounters it for the first time. A district court sitting in APA review can set aside the policy — declare the directive unlawful, vacate it, and enjoin its future use. What a district court generally cannot do is order the government to pay you money it owes under a grant agreement. Claims sounding in contract against the United States above $10,000 belong in the U.S. Court of Federal Claims under the Tucker Act.

So the practical architecture after September 17 looks like this:

• The directive is gone. No agency official can lawfully invoke the February 5, 2025 memo as the basis for a termination, a continuation-award denial, or a condition going forward.
• Individual grantees seeking restoration of terminated awards must file in the Court of Federal Claims. That is a separate filing, a separate docket, a separate limitations analysis, and separate counsel expense per grantee.
• The Department's June 2025 guidance on continuation awards survives under independent authority. Vacating one instrument does not vacate every instrument that pointed the same direction.

This is the same structural reality we walked through in the context of the agency-priorities clause and the Talwani clawback rulings, and it is why a headline that reads "judge restores $600 million" is almost always wrong. A vacatur changes the law that governs your claim. It does not adjudicate your claim.

The practical value of the ruling to a terminated grantee is therefore enormous but indirect: it converts a Court of Federal Claims filing from an uphill argument into a considerably shorter one. You are no longer litigating whether the agency's justification was sound. A court of competent jurisdiction has already found the sole stated basis for your termination unlawful on three grounds. Your remaining work is quantum — what you were owed, what you spent, what you are entitled to — rather than liability.

Why the 2 CFR 200.340 Holding Matters More Than the Headline

Strip away the teacher-training specifics and the durable precedent is the Uniform Guidance holding.

Since early 2025, the standard agency move in mass terminations has been to invoke the Uniform Guidance's termination provisions — particularly termination where an award "no longer effectuates the program goals or agency priorities" — as a nearly unlimited off-ramp. Recipients were told, in effect, that any award could be ended at any time because priorities had changed.

Judge Kelley's holding that the directive was contrary to Uniform Guidance limits on post-award terminations is a judicial statement that those provisions are bounded. Combine it with the GEPA notice-and-comment holding and you get a two-part rule that agencies will find inconvenient: an agency cannot use a categorical, undefined subject-matter screen as a termination basis, and it cannot install a policy of general applicability by memorandum when a statute requires rulemaking.

Which brings this ruling into direct collision with the biggest pending change in federal grants law. OMB's proposed Uniform Grants Regulation — the May 29, 2026 rewrite of 2 CFR Part 200 that would convert the Uniform Guidance into binding regulation — expands agency termination authority over discretionary awards precisely where this decision constrained it. We have tracked that proposal from the May proposed rule through the comment record, where roughly 496,000 comments came in and the overwhelming majority ran against it.

And that rule is currently frozen. Section 157 of H.R. 6500, the Continuing Appropriations and Extensions Act, 2027, signed September 2, 2026, prohibits OMB from issuing or finalizing the May rule or a substantially similar rule, with any rule issued before enactment having no force or effect, through December 11, 2026 — meaning OMB cannot finalize before December 12. We covered the mechanics in the Section 157 analysis.

Read the two together and the calendar becomes legible. Between now and December 11, the operative law on post-award termination is the existing Uniform Guidance as construed by this and adjacent rulings. That is the most favorable interpretive environment recipients have had since early 2025 — and it has a defined expiration risk.

What to Do in the Next 60 Days

If your TQP or SEED grant was terminated under this directive: get a Court of Federal Claims assessment now, not after an appeal resolves. Limitations periods run independently of the district court docket, and a favorable liability record does not preserve a stale claim. Pull the termination notice, the specific language cited, your approved budget and budget periods, your drawdown history in G5, and your allowable-cost documentation for the period between termination and today. The single most common reason a meritorious claim shrinks is that the recipient stopped keeping contemporaneous cost records the day the money stopped.

If you hold any Education Department discretionary award: the vacatur is shield, not sword. It bars reliance on the February 2025 memo. It does not bar a properly reasoned, individually justified termination under other authority, and it does not touch the June 2025 continuation-award guidance. Continue performing to your approved scope, and treat any new condition or narrowing request as something to get in writing with a stated legal basis.

If you are drafting a proposal into any federal program this fall: the instinct to preemptively scrub program design has real costs, and this ruling is evidence that the scrubbing was, at least here, a response to an unlawful instruction. That said, a court vacating a directive does not change what a 2026 peer reviewer or program officer will do with your application. The defensible position is to describe your intervention in terms of the statutory purpose and the measurable outcome — teacher retention rates, placement in high-need schools, student achievement gains — and let the population you serve be a fact of your service area rather than a framing device. That is better proposal writing regardless of the political weather.

If you are a state education agency or system office: the government-wide scope of this vacatur is the part worth operationalizing. Eight states litigated; every recipient benefits. That asymmetry is an argument for coordinated state-level APA litigation as a substitute for hundreds of individual filings, and it will be made again.

The Larger Pattern

This is now one of several 2026 decisions finding mass grant terminations unlawful — alongside rulings on NEH terminations and the AHRQ clawback line of cases. The courts have been remarkably consistent: agencies may change priorities, but changing priorities is a rulemaking act with procedural obligations, and terminating an executed award is a decision requiring an individualized, articulated basis.

What the courts have not been able to do is make grantees whole on any timeline that matches an organization's payroll. Programs that shed 95 percent of their active portfolio do not reconstitute because a memorandum was vacated nineteen months later. The staff are gone, the partnerships lapsed, the teacher-candidate cohorts graduated or did not.

That is the real lesson for anyone building on federal money right now: legal vindication and organizational survival are different projects, and they run on different clocks. Win the first if you can. Plan for the second as though you will not.

Sources: National Law Review case analysis · K-12 Dive on the vacatur · Higher Ed Dive coverage · Ogletree Deakins client alert