The federal school choice program that’s launching next year could become one of the nation’s largest sources of K-12 funding, even if just a slice of taxpayers eligible for the federal tax credits the program provides decide to use them.
The American Federation for Children, a school choice advocacy group, estimates that if the program incentivizes 1 of every 5 eligible taxpayers to contribute to groups that give out scholarships to K-12 students, it would raise $37.6 billion. That sum rivals the combined funding of Title I—targeting disadvantaged students—and the Individuals with Disabilities Education Act, the U.S. Department of Education’s two largest funding streams for schools.
Nearly three quarters of taxpayers will be eligible to participate next year when the program officially launches, the AFC says in a new report. Those figures are higher than some other widely circulated estimates, according to the AFC report.
The federal tax-credit scholarship program, created through last year’s One Big Beautiful Bill Act, allows eligible taxpayers to donate up to $1,700 to a scholarship-granting organization and receive a dollar-for-dollar tax credit on their donation, diverting money that would otherwise land in federal coffers. These scholarship-granting organizations will then award funds to public, private, and home-school students to spend on a variety of eligible expenses such as tuition, tutoring, and books.
Getting a handle on how many donors are eligible and how much they might give is an important step in understanding the scale of the ambitious new school funding mechanism. The new AFC analysis is among a handful of emerging attempts by advocates and others to take stock of how large the program could grow.
If scholarship-granting organizations prioritize students from low-income families and those with disabilities, as some have already pledged to do, much of that money could flow to the most disadvantaged students, said Patrick Graff, a senior fellow with the American Federation for Children who conducted the analysis.
“Not many folks know about this new tax credit yet,” he said. “Once it gets up and going, it will be a substantial amount of federally incentivized new dollars for education across the country.”
The federal program doesn’t face the same constraints as state tax-credit scholarships
Whether 20% of eligible taxpayers will choose to participate remains an open question. But even if participation levels are significantly lower, the program still has the potential to become a major source of funding for students, Graff said.
If 5% of eligible taxpayers donate, that will still mean $9.4 billion annually for scholarships, the analysis found. (Congressional scorekeepers have estimated the program could grow to $4.4 billion by 2034; others have projected it could grow larger.)
Currently, about 1% to 3% of eligible taxpayers participate in similarly styled state-level programs, with 3% typically donating in states with mature and well-established tax-credit scholarship programs. But there are several reasons the federal program could be more successful in attracting donors, according to the analysis.
For starters, state programs have caps on how much a scholarship-granting organization can raise in a year, in addition to limits on how much states can give out in tax credits, while the federal program does not. Corporations are also allowed to give in many states, which may further limit how many taxpayers can claim the credit before the program cap is reached.
Additionally, in state programs, scholarships are reserved for students to use toward private school tuition. The federal program, on the other hand, will allow scholarships to go to students in public schools and, in many states, home-schooling families. Recipients will be able to spend the money on a variety of eligible expenses other than private school tuition.
“That’s a massive universe of students as well as potential donors,” said Graff. Pointing to how students enrolled in public schools will be eligible for scholarships and how school districts could set up their own scholarship-granting organizations, he said: “Think about all the public school families out there that would be interested in donating to help improve their local schools. That’s a huge difference in terms of [potential] participation levels.”
Finally, potential donors are more likely to be aware of a federal program operating in most of the country than they are of a program operating in an individual state. Donor awareness is one of the biggest challenges for state programs that don’t meet their caps, the report says.
Among the report’s other findings:
- 121.5 million taxpayers will ultimately be eligible to donate and receive tax credits.
- 100 million filers are eligible to donate the full $1,700 and receive the maximum credit under the law.
- The 31 states that have opted in to the program or are on track to participate have 68.3 million eligible donors, with the capacity to give $104.9 billion.
- The 20 jurisdictions that have not opted in have 53.2 million eligible donors, who can still receive a tax credit for donating to a scholarship-granting organization in another state, with the capacity to give up to $83 billion.
Potential barriers: insufficient cash, administrative burden, Trump admin. distrust
Even though the federal program may not face some of the challenges its state-based cousins do, there are still barriers to growth.
Awareness—both for potential donors and scholarship families—has consistently been a challenge for states’ tax-credit scholarship programs, said Josh Cowen, a professor of education policy at the University of Michigan. So, too, has been the administrative burden on taxpayers who want to donate to a scholarship-granting organization and claim the corresponding credit.
“The whole tax-credit [program] is only as good as the donor base,” Cowen said.
The report proposes an avenue to make it easier for taxpayers who may struggle to give $1,700 in a lump sum to still participate. Under existing withholding rules, interested donors could reduce their federal withholding from their paycheck and make biweekly donations of $65, which would total the $1,700 donation limit by the end of the year.
Most Democratic governors have yet to opt their states in to the program. But more may sign on once they see the details in the program’s regulations, which the Treasury Department is expected to propose by the end of September. But there are many other reasons those governors may remain concerned, Cowen said.
Their hesitation isn’t just about the politics of school choice. Democratic governors understand the program’s merits, but there’s a lot of distrust of the Trump administration, Cowen said, pointing to recent news that the administration has proposed ending the tax-exempt status of private K-12 schools and universities over policies that help students based on their race, such as providing scholarships.
“The ask of these Democratic governors is: You’re potentially about to open a whole bunch of nonprofits in your state that deal specifically with K-12 kids to investigations with the Trump people,” Cowen said.
On the flip side, however, because taxpayers can donate to scholarship-granting organizations anywhere in the country and receive the tax credit, Democratic governors may not like seeing all that potential money going to students in other states, Cowen said.
“I’m in Michigan. If we stay out, I guarantee you there are going to be a lot of donors going to Ohio or Indiana,” he said. “That’s a tall ask of a governor to let that money just go to a neighbor.”
