Private K-12 schools that give racial minorities preference in admissions and scholarships and other targeted supports would lose their status as tax-exempt nonprofits under newly proposed U.S. Treasury regulations released Sept. 3.
The proposal, which also applies to colleges and trade schools, explicitly bars schools from factoring race into “educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or supported program.”
Schools could continue to take “race-neutral criteria” into consideration in granting admissions, scholarships, and financial aid, including factors such as family income, geographic residence, individual hardship, military family status, academic achievement, or whether a student would be the first in their family to attend college or private school or adopt a trade, the agency said. And schools could continue to choose students based on their religious affiliation.
The proposal could be a major financial hit for private schools that offer scholarships, an admissions edge, or other assistance to racial minorities. Even if the schools themselves wouldn’t owe much in taxes, donors are allowed to deduct their direct donations, a big fundraising benefit.
The Trump administration tied the proposal to the U.S. Supreme Court’s 2023 decision to strike down affirmative action, or consideration of race in college admissions. It’s already undertaken a concerted effort, citing the same ruling, to eradicate initiatives in public schools focused on helping traditionally marginalized student groups, calling such programs “illegal DEI practices” and threatening to cut federal funds to schools that use them.
The newly proposed IRS regulations extend those anti-DEI efforts to private schools.
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” said Scott Bessent, the Treasury secretary, in a statement.
But Denise Forte, the president and CEO of EdTrust, an organization that advocates for low-income students and students of color, said the proposal goes beyond the bounds of the court’s decision.
“Students of color continue to face real and persistent barriers to accessing educational opportunities,” she said. “Schools should not have to fear federal punishment simply for acknowledging the realities their students face.”
Proposal is part of the Trump administration’s overall campaign against DEI.
During this second Trump term, the office for civil rights at the U.S. Department of Education has investigated districts offer race-specific programming such as a Black Student Success Plan in Chicago Public Schools over which the department rescinded millions of dollars in grants that the agency will now restore under a court settlement.
And earlier this year, the administration pushed to rewrite grant rules across the federal government to more explicitly restrict efforts to prioritize racial equity and support undocumented immigrants.
But there may be limits to this approach: Last year, a federal judge ruled against the Trump administration’s effort to force schools to certify that they do not use DEI practices or risk federal funding.
The proposed rule on private schools’ tax status—which the Treasury Department said affects 18,000 educational institutions—would take effect after May 31 of next year.
That’s just months after the Treasury Department launches a sweeping new school choice initiative, enacted as part of the One Big Beautiful Bill Act of 2025.
Starting early next year, taxpayers can claim dollar-for-dollar federal tax credits of up to $1,700 by donating to scholarship-granting organizations in participating states.
These organizations will, in turn, offer financial awards to students and families for a range of educational programs and services, including private school tuition.
“As taxpayer dollars flow to private schools, they should not come with fewer protections or greater barriers for students of color,” Forte said.
She noted that white students already make up nearly two-thirds private school enrollment, compared to almost half of public-school enrollment.
Educators and advocates have 60 days to comment on the proposed rule or ask for a public hearing on the issue.
For now, the National Association of Independent Schools, a membership organization for private schools, is reviewing the proposal, a spokesman said.
“Because the regulations remain proposed and are subject to the federal rulemaking process, significant questions remain regarding their scope, interpretation, and implementation,” the spokesman said.
Schools can still try to combat discrimination, but will they?
The proposal explicitly notes that private schools could still select students based on religious affiliation, as well as embrace a religious mission and curriculum.
Private schools could continue to craft policies or create programs designed to “eliminate prejudice and discrimination,” provided that those actions don’t privilege a particular race over another, the proposal says.
But, given the potential financial stakes involved, schools may avoid such programs out of an abundance of caution, experts said.
Conservative groups have called out private schools for creating race-based affinity groups, offering courses that explore subjects like science through the lens of race, or teaching about gay rights.
Those activities wouldn’t threaten a private school’s tax-exempt status under the proposal, but educators might be reluctant to engage in them anyway, to avoid any appearance of violating the directive, said Amy Berman, an attorney who worked in the Justice Department’s educational opportunities section under both Republican and Democratic administrations, including as its principal deputy.
The proposal would “have a chilling effect or anticipatory obedience, which is terrible for all students,” said Berman, who is now the deputy director of the National Academy of Education, a research organization.
