The Trump administration expects at least 2 million K-12 students nationwide to receive scholarships through its new national school choice program, which it projects will grow to $26 billion annually by 2030, an amount that dwarfs what’s now spent on school meals or Title I aid.
The U.S. Department of the Treasury on Thursday released long-awaited proposed rules outlining how the new Federal Tax Credit Scholarship program will work when it launches next year.
The projections included in the proposal shows that the administration expects the program to grow into one of the largest federal education funding streams. An annual investment of $26 billion would outpace the two current largest federal school expenditures—the National School Lunch Program and Title I for disadvantaged students, each about $18 billion.
Under the program, the first of its kind, taxpayers will be able to contribute to organizations in participating states that give out K-12 scholarships and receive dollar-for-dollar federal tax credits in exchange. The scholarship-granting organizations can give out awards to cover private-school tuition and some expenses tied to public school. Governors have to opt in for students in their state to benefit; as of Oct. 1, 31 have either done so or are on track to.
On Thursday, the Treasury Department, through its Internal Revenue Service, released two sets of documents as it prepares to launch the program on Jan. 1. One contains temporary regulations to govern the program as it gets off the ground. The other, more substantial document contains the proposed regulations that are now open for public comment and that the IRS will finalize at a later date—likely after the program’s Jan. 1 start. (The agency will have to comb through the comments before finalizing the rule, and it’s also planning a public hearing in December).
Education Week waded through the 250 pages of proposed and temporary regulations and spoke with education experts to answer some of the most important outstanding questions about how the program will operate.
Still, if there’s one thing to take away, it’s this: Some major questions are unaddressed; the IRS says more information is forthcoming (more on that below).
Here’s what we know so far based on the law and the proposed regulations. Use the links below to skip to a specific question.
- Which students are eligible?
- How many students will benefit?
- Will public school students be able to benefit?
- Which expenses can scholarship recipients cover with their awards?
- Can home-school students receive scholarships?
- How much money can people donate?
- How can scholarship-granting organizations use that money?
- How will organizations determine which students are eligible for scholarships?
- Can states set their own rules for SGOs?
- How will students be protected from discrimination?
- Will Democratic governors who have been holding out opt in?
- What anti-fraud measures are there?
Which students are eligible?
A wide swath of students qualify for scholarships. Under the law, their families can earn up to 300% of their area’s median income—a generous threshold that’s as high as $616,500 in Santa Clara County, Calif., and as low as $107,100 in Oglala Lakota County, S.D., according to an analysis from EdChoice, an advocacy group.
The American Federation of Children, a school choice advocacy group, has estimated that 92% of students in the United States could be eligible, if every state participates.
But they have to live in a state that has opted in. Currently, that excludes students in the 19 states where governors either haven’t decided whether to participate or have said they won’t.
How many students will benefit?
With the program not yet off the ground, estimates for how large it could grow have been all over the map.
The IRS offers the latest figures in its proposed regulations, estimating that 2 million K-12 students in the states that are on track to participate so far could receive scholarships worth $12,000 apiece to attend private school full time. Five million students could receive scholarships to attend private school part time.
Their scholarships would come from a projected 600-700 scholarship-granting organizations, or SGOs, in operation in the participating states by 2030.
The scholarships would be bankrolled by 11 million taxpayers contributing $26 billion.
Will public school students be able to benefit?
The One Big Beautiful Bill Act that authorizes this program allows students to use scholarships on certain expenses tied to public school, such as tutoring and “supplementary” services, such as before- and after-school programs.
Many were awaiting these proposed regulations for additional clarity on the full scope of expenses the scholarships could cover. The IRS, however, says there’s more to come on that. (See the next question.)
Which expenses can scholarship recipients cover with their awards?
This is one of the biggest areas of uncertainty, and it remains unresolved even now that the regulations have arrived.
“A lot of folks were waiting on these rules as a way of firming up whether they felt like their model was within the framework was going to be set down,” said Kristin Blagg, a principal research associate focused on education at the Urban Institute, a left-leaning think tank.
The proposal published today says the IRS hasn’t finalized guidance on that topic, but it’s treating that guidance as a “high priority” and intends to publish it “as soon as possible so that taxpayers may rely on it.”
Some of the expense categories outlined in the law authorizing the program—like tuition and room and board—aren’t relevant to public schools, which are generally much less equipped to accept payments on a regular basis, Blagg said.
The other listed categories—including tutoring and special education services—may require additional clarification from the IRS before schools can fully grasp how to start charging for them.
Can home-school students receive scholarships?
The regulations don’t directly answer this question. It appears that home-schooling families in some states will be eligible to participate but there are still several unknowns.
Home-schooling families will be eligible to use scholarship dollars in the 22 states that categorize them as private or religious schools. However, the lack of details on eligible expenses means it’s unclear how much home schoolers will be able to take advantage of the scholarships, said Will Estrada, senior counsel for the Home School Legal Defense Association.
Home schoolers in the remaining states that don’t define home schools as private or religious schools will likely not be able to use scholarship funds, Estrada said.
“It’s clear here that the IRS took a very careful approach,” he said. “It’s not a shock based on the language that was signed into law. I think it will be disappointing to home schoolers in some states. But we are encouraged that a significant number of home schoolers in states where home school is defined as a private school can participate.”
However, some school choice advocates don’t see these proposed regulations as the final word on home school participation.
“There is a strong legal argument to be made that these students who are being home-schooled and are in microschools, to separate them out because of arbitrary definitions in state law, doesn’t make sense,” said Leslie Hiner, a senior adviser for legal policy with EdChoice, a school choice advocacy group. “It’s not indicative of where education is right now. Education is all about innovation and applying new ideas and trying new ways to learn, but this seems to be going in the opposite direction.”
How much money can people donate?
One lingering question now clarified is how much married couples will be able to donate and receive a corresponding tax credit. Initially the law’s language appeared to cap the tax-credit amount at $1,700 not just for individuals but also for married couples filing their taxes jointly.
The proposed regulations state that married couples filing jointly will be eligible to receive up to $3,400 in tax credits for eligible donations. This is a win for advocates who say this addition could funnel substantially more money into the program.
Taxpayers may be able to qualify for additional tax credits from their states for donations to SGOs, incentivizing them to donate more than the $1,700. The IRS estimates 46.5 million taxpayers would be eligible for both state and federal tax credits for these contributions.
How can scholarship-granting organizations use that money?
The regulations addressed this major question, which had been a concern of school choice advocates.
The law states that 90% of an SGO’s income must go toward scholarships. Advocates, however, contended that 10% is not enough money to cover the administrative and other costs of running an SGO, such as creating marketing materials and setting up online platforms to manage applications and award funds.
The proposed regulations clarified a workaround for organizations whose operations are largely—but not exclusively—committed to granting scholarships. For such SGOs for whom issuing scholarships makes up at least 85% of their activities, that 90% rule only applies to income raised through donations from the federal program, so long as those donations are put in a segregated account, or safe harbor.
That means SGOs can raise money through other means and apply it toward administrative and other expenses. In short, this will help SGOs that are already operating in states slated to participate in the federal program, said Hiner.
“This means that nonprofits that are seasoned in the business of providing scholarships are the ones that will be offered the safe harbor to participate,” she said.
The rule may discourage school districts and their affiliated foundations from participating as SGOs, said Josh Cowen, a professor of education policy at Michigan State University, and a prominent critic of private school choice programs. However, public schools likely stand to benefit more from other parts of the law, he said.
“There has been too much focus in the public school community about the ‘need’ to run an SGO because the most clear form of revenue for a public school district is just as a provider,” he said. You don’t have to run an SGO to run an after school program. And [districts] can charge tuition for that after-school program under the law and to an after-school affiliate SGO without having to run their own.”
Another potential boon for donors may come in states that offer similar tax credits for the same kinds of expenses. According to the regulations, donors who are eligible for state and federal tax credits for the same expense don’t have to deduct the amount of the state credit from the value of the federal credit. In essence, they could get two tax credits for the same donation, assuming it’s more than $1,700.
That’s a significant departure from the text of the law, said Carl Davis, research director at the Institute on Taxation and Economic Policy, a left-leaning think tank. The law specifies that a donor’s federal tax credit “shall be reduced by the amount allowed as a credit on any state tax return.”
“What they’re basically doing is, ‘We don’t like the order, we’re going to change the order to get the result we want,’” Davis said.
How will organizations determine which students are eligible for scholarships?
Any student whose family participates in federal benefit programs for food, cash assistance, and subsidized housing, including SNAP, TANF, WIC, Section 8, and SSI, is automatically eligible without needing to show any other income paperwork.
Notably, Medicaid does not appear to confer automatic eligibility. Many public schools already use Medicaid eligibility to determine whether students qualify for free and reduced-price meals.
Foster children are also automatically eligible to receive scholarships, as are children receiving tutoring or special education services from schools located in certain low-income census tracts.
Determining which schools fall into those census tracts-—or enroll a large-enough population of students that live within one—could be challenging, said Blagg of the Urban Institute.
In an economically stratified city like the District of Columbia, for instance, eligibility for that provision might differ from one neighborhood to the next.
“It’ll just be interesting to see whether schools located in the neighborhoods are notified that they are able to take advantage” on behalf of their students, Blagg said.
Can states set their own rules for SGOs?
The short answer is no. The primary role for states in this program is to decide whether to participate—a choice governors will have to make before the start of each year—and provide the IRS with a list of SGOs operating within state lines.
It pretty much stops there under the proposed regulations.
States will have to certify that the SGOs offering scholarships to their students meet basic state requirements for charitable organizations, and states will be the recipients of the annual audits. Beyond that, the proposed rules say states won’t be able to require that SGOs follow any rules that are more restrictive than the basic requirements for SGOs laid out in the federal law.
That means a state can’t require that an SGO award scholarships only to public school students or that an SGO only cover scholarships for after-school programs and tutoring. It can’t require that private schools accepting scholarship money abide by academic accountability requirements, like the state testing administered to public school students.
However, an SGO can decide on its own to focus its scholarships on specific kinds of schools, students, and services. (More on that below.)
How will students be protected from discrimination?
Although this has been a major fear of civil rights groups, the regulations don’t address the question directly. They do, however, make clear that states won’t be allowed to place stricter criteria than the federal government’s when certifying scholarship-granting organizations.
SGOs are allowed to limit the populations they serve—for instance, by serving students only from private or only from public schools, by offering scholarships to students from the lowest-income families. They can block certain groups of students, like students with disabilities, LGBTQ+ students, or those from a particular religious background, from participating.
States cannot, meanwhile, place stricter rules on SGOs than the federal government’s. That means states are required to certify SGOs even if they restrict scholarships for certain groups of students in ways state officials don’t agree with.
“States would not be allowed to protect the civil rights of students by saying, if you’re going to be getting this redirected public financing with effectively our state stamp of approval, you can’t exclude students based on their religion, for example,” said Sarah Cohen, the associate director of government affairs for the American Federation of Teachers.
Will Democratic governors who have been holding out opt in?
Thirty-one states have either opted in to the program for 2027 or are on track to, according to Education Week’s tracker of state decisions. Three governors so far have declined to participate.
All but one of the remaining holdouts are Democrats, some of whom have said they’d like to be able to set parameters for how the program operates in their state. Some who have yet to announce their intentions previously said they were waiting on the IRS to issue these regulations before making up their minds.
Political considerations are also in the mix, said Cowen. Elections are coming soon, and this program is unpopular with a segment of the Democratic base.
“Why would you jump in if you’re a governor [...] over the next few weeks while the temperature is as high as it is?” he said. “Any ambiguity here is going to be a reason to wait a little longer to pull that final trigger.”
Democratic governors’ hesitation isn’t just due to upcoming elections, Cowen said. It’s also due to their mistrust of the Trump administration.
He pointed 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 race, such as providing scholarships.
“Will this just be one more way the administration uses to attack public schools?” he said. “I could absolutely see some governor saying, ‘[This program] looks good, but I just can’t deal with another six more districts in my state getting audited by Trump for some crazy thing. So let’s just wait a year and see if he does it.’”
What anti-fraud measures are there?
The IRS notes in its proposed regulations that state-level tax-credit scholarship programs—there are 20 across the country, according to an Education Week analysis—have been subject to fraud and abuse. Under the proposed rules, SGOs will have the responsibility of ensuring the scholarships they issue cover legitimate expenses. They’ll also be required to commission third-party audits annually and submit those to the states where they’re operating.
The proposed regulations require that SGOs implement “reasonable procedures for the prevention and detection of fraud and abuse,” including safeguards against duplicate scholarship awards.
