Yes, agree that Catholic entities shouldn’t take Federal money, although the gov’t is still wrong to tie these anti-religious strings to its largesse. However, there are some other issues, like federal scholarships for students at religious schools, that seem legitimate to worry about how the anti-Christian Feds might use such to target such schools.
That is probably why schools like Christendom and Hillsdale don't do anything with federal student aid: e.g., they don't accept Pell grants nor do they cooperate with guaranteed student loans.