Congress has given the U.S. Treasury Department responsibility for the success or failure of a mechanism that could generate scholarships for millions of K–12 students. Treasury’s rules for the new federal scholarship tax credit will determine whether that mechanism works effectively to transform elementary and secondary education in America.
The new tax credit is a remarkable legislative achievement. Now embedded in the federal tax code—with no aggregate cap or expiration date—is a one-for-one, nonrefundable credit to encourage charitable donations to K–12 scholarship-granting organizations (SGOs). Students attending traditional public, public charter, private, and religious schools are all eligible for various types of scholarships.
Yet hasty, last-minute redrafting of key provisions created some ambiguities that only Treasury rulemaking can resolve. As a longtime advocate of school choice and education reform, I offer the following advice.
Act quickly. The credit isn’t available until January 1, 2027, but for the measure to succeed in helping students, a lot needs to happen before then. If not expedited, the formal rulemaking process could take a year or more—not accounting for inevitable lawsuits from teachers unions trying to disrupt implementation. Governors need time to determine which SGOs will satisfy federal requirements, and the SGOs need time to design their scholarship programs and identify potential donors, scholarship recipients, and quality education providers. The sooner we have rules, the more likely it is that implementation will succeed.
Clear up confusion about the governors’ roles. If a state voluntarily elects to allow its students to receive scholarships for 2027, the governor must provide the Treasury Department with a list of federally compliant SGOs. Governors will likely use their bully pulpits to highlight favored organizations, and some might narrowly elevate SGOs focused on, say, tutoring for public school students. That’s allowed. But Treasury should not give governors additional authority to discriminate against other compliant SGOs by excluding them from their states’ lists.
Further clarify the role of governors. In addition, governors should be prevented from adding requirements not found in the federal law, such as prohibiting SGOs from focusing on specific student groups or educational approaches. Similarly, new governors should not be allowed to remove an organization from a state’s list unless that organization falls out of legal compliance; this stipulation would preempt the sudden disruption of a student’s education due to politics.
Clarify ambiguous bill language. For example:
• One hastily drafted provision suggests that compliant SGOs on a governor’s list must be “located in the State.” Does this language exclude organizations registered to do business in the state but headquartered elsewhere? If so, that would prevent proven national SGOs from helping children across the country.
• Other provisions require that SGOs hold tax-credited donations in a segregated account but mandate that 90 percent of the organization’s income be spent on “qualified K–12 scholarships.” Congress clearly did not intend to impose this 90 percent condition on all the income of or contributions to SGOs—many of which already manage state-based school choice programs that have different definitions for “qualified scholarships.” Treasury should clarify that the 90 percent rule only applies to contributions through the federal scholarship tax credit.
• The bill makes scholarships available to all students eligible to enroll in a state’s elementary and secondary schools below defined income levels, but it later refers to Coverdell Education Savings Accounts for its list of eligible education expenses. The reference to Coverdell should not be interpreted to further restrict student eligibility, or else in some states it could disqualify students in microschools and other innovative models from receiving scholarships, contrary to the congressional intent to encourage more innovation in K–12.
Remember the law’s purpose. At its heart, the federal scholarship tax credit aims to improve K–12 education. Our system is failing to adequately educate about one-third of our children overall, and more than half in our low-income communities. This tax-credit provision could help ill-educated children achieve their full potential, with positive consequences for families, communities, and our country.
