Private and homeschooled K-12 students may be eligible for federal scholarships as early as next year, according to rules proposed on October 1 by the U.S. Treasury Department and Internal Revenue Service (IRS). The rules implement the “Education Freedom Tax Credit,” which “builds on” language in the 2025 Big Beautiful Bill, and they are scheduled to take effect on January 1, 2027.

“Education freedom is the key to unlocking opportunity and success for our next generation of students,” argued U.S. Education Secretary Linda McMahon. “The Education Freedom Tax Credit, the largest expansion of school choice in history, will supercharge those opportunities for millions of children” and ensure “that every child has access to the education they need, not one limited by ZIP code, family income, or government?'imposed barriers.”

The tax credit funds education scholarships, which will be dispensed through a “Scholarship Granting Organization” (SGO) to students in need of scholarship assistance, which means predominantly students who attend private or homeschool, since public school is already offered free of charge at taxpayers’ expense.

The “scholarships are expected to empower families to select the schools, learning services, supports, or materials best suited to their children’s needs,” according to a U.S. Department of Education fact sheet, and enable families to “have

access to schools that align with their values and aspirations for their own children.”

Families seek alternatives to public education for many reasons, but the two main categories involve when the public school offers a sub-par education that keeps students from learning, or when it offers an ideological education that clashes with the values a family wants their child to learn. The Education Freedom Tax Credit is the federal government’s broadest recognition of that fact to date.

However, the scholarships are not only available to students in private or homeschool. “Families may also choose to use the scholarship for tutoring and other academic supports for their student, which evidence suggests has been associated with learning loss recovery after the COVID lockdowns,” the Education Department said. This distinguishes the program as broader than many state school choice concepts.

In expectation of the inevitable criticism by teachers’ unions, the Trump administration mustered a list of studies to support school choice. They cited 10 out of 16 “randomized controlled trial evaluations (RCTs)” that found “positive impacts for some or all participants” on academic achievement, as well as three out of five showing positive effects for “academic attainment (graduation rates or college matriculation).”

Additionally, the administration referenced 31 out of 33 studies showing that school choice improved competitiveness and 25 out of 28 studies showing that school choice “saved money for taxpayers.”

As the Education Department outlined the program, a state’s governor (or the mayor, for D.C.) must opt-in to the program to become a “covered state.” That state must then submit an approved list of SGOs before the deadline (February 15, 2027, then January 1 for every future year). From that point, the government takes a back seat in the program. Donors may choose to make cash contributions to a qualifying SGO, and they may then (with proper documentation) claim the donation as a tax credit.

An individual may claim a credit up to $1,700 (or $3,400 for a married couple filing jointly) in this way, which “reduces Federal income tax dollar-for-dollar.”

Participating SGOs may then “determine scholarship amounts based on their missions, available funds, and students’ qualified expenses.” To qualify, an SGO “must meet a 90-percent scholarship spending requirement, keep qualified contributions in separate accounts, and provide scholarships to at least 10 students who do not all attend the same school. They must be on a participating state’s SGO list and meet additional requirements.”

For interested families, there is a degree of removal between contributing to the tax credit and receiving a scholarship, as “Donors may not earmark contributions for a particular student.”

Thus far, criticism of the program has been fairly muted. The Massachusetts Association of School Superintendents complained that the program would disadvantage public schools “compared to the private school networks that already have elaborate fundraising and scholarship infrastructure in place,” and they argued that scholarship applications to prove income eligibility created “bureaucratic hurdles that will certainly leave behind our most vulnerable families.”

The IRS estimates that “by 2030, more than 11 million donors could contribute $26 billion annually to 600-700 SGOs in participating states,” supporting “2 million full-time scholarships of $12,000 each, or 5 million part-time scholarships of $4,500 each, per year.”

The Trump administration contends that the credit “does not divert money from local or state taxes” but instead “encourages voluntary charitable giving from American taxpayers to support education services.” However, the tax credit will undeniably reduce federal revenues by whatever amount American taxpayers contribute to these scholarship funds. The Trump administration may be hoping that nationalized school choice will inherently reduce spending on public education over time, as public schools serve fewer and fewer students.

To date, 30 states have reportedly opted in to the scholarship program, including the usual Republican states plus Colorado and Virginia, which voted Republican 20 years ago. In four states (Arizona, Minnesota, Wisconsin, and Oregon), governors ruled out participation for 2027, and others such as New York are expected to join before year’s end.