Federal tax credit program opens door for private school scholarships across 23 US states

A new federal tax-credit program aimed at expanding school choice has already attracted 23 states, mostly led by Republican governments. The program allows individuals to donate to scholarship-granting organizations and receive a dollar-for-dollar tax credit of up to $1,700 starting in the 2027 federal tax year, The Hill reported. These scholarships can help families cover private school tuition or additional services for public school students, such as tutoring, transportation, and support for students with special needs.

While supporters have called it the largest expansion of school choice in U.S. history, critics say many questions remain about how the program will operate and its potential impact on public schools.

How the federal tax credit works

Under the new program, the donors get a complete tax credit equivalent to the amount they contribute. This is unlike the usual tax deductions that donors get. Tax deductions do not offer dollar-for-dollar reductions. Families earning up to 300% of their area’s median income can use the scholarships for approved educational expenses.

Scholarship-granting organizations must meet specific requirements to qualify. They must serve at least 10 students from more than one school, and at least 90% of donations must be directed toward tuition, tutoring, special needs services, school supplies, or transportation.

The states that have opted in so far include Alabama, Alaska, Arkansas, Georgia, Idaho, Indiana, Iowa, Louisiana, Mississippi, Missouri, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Virginia, West Virginia, and Wyoming, according to The Hill.

Tommy Schultz, CEO of the American Federation for Children, described the program as “the biggest expansion of school choice in American history, particularly because it is the first federal, 50-state, national school choice opportunity that has ever existed.”

Federal regulations still pending

Despite the enthusiasm, key details about the program are still being finalized. The Internal Revenue Service (IRS) is working on the rules that will govern how the tax credit operates. Leslie Hiner, vice president of legal policy at EdChoice, told The Hill that “the IRS has not yet drafted any of the rules, so no one could really say for sure if the scholarship-granting organizations are meeting all the requirements of the statute and the regulations.”

Until these rules are completed, states that have opted in are essentially moving ahead without clear guidance. The IRS has already sought public comment on the program, but it is not yet accepting lists of organizations that want to participate.

Concerns about civil rights and equity

Critics also raise questions about how the program will protect students’ rights. Zahava Stadler, project director of Education Funding Equity Initiative at New America, said that states “are opting in without knowing that their kids’ civil rights are guaranteed. There are also questions about reporting requirements, and whether schools receiving these scholarships will comply with nondiscrimination laws.”

Some opponents worry the program could create a two-tier education system, with well-funded private schools for higher-income families while public schools serving low-income and special needs students remain underfunded. Senator Bernie Sanders (I-Vt.) warned last year that “creating private schools for the wealthy and underfunded public schools for low-income kids is not what this country is supposed to be about.”

Political and financial debates

While the administration has argued that the tax credit will not reduce state or local funding, the program comes in an election year, and political considerations may influence how quickly states opt in. Hiner told The Hill that governors may wait until elections or primaries are over before committing, and pressure from public school advocates could also slow adoption.

There are also concerns that the $1,700 credit will not entirely cover the cost of private school tuition and that the measure will predominantly benefit those from higher-income families. Stadler comments that state budgets are being squeezed by federal budget cuts and other financial pressures, so this measure will have little impact in assisting schools.

Supporters push for outreach and awareness

School choice organizations are actively promoting the program. The American Federation for Children and Odyssey have partnered to create the AFC Scholarship Fund, which has already received $10 million in donations to raise awareness and support scholarship-granting organizations nationwide.

Despite the uncertainties, advocates emphasize that the program relies on voluntary donations rather than taxpayer funding. Schultz told The Hill, “This is such a no-brainer for governors. Donors across their state can put money to use locally without the state having to spend a dime.”

As federal regulations are finalized and states decide whether to participate, the program’s long-term impact on school choice and public education funding remains a subject of debate.
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