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Could the new federal tax-credit scholarship program pay for summer school or tutoring for public school students? Could it help homeschool families, microschools, and after-school enrichment programs alike?
Or will most of the money mirror voucher programs and flow through large established scholarship groups for private school tuition?
The race is on to shape a program that could become one of the largest federal investments in K-12 education and fuel a dramatic expansion of private school choice. The Treasury Department fired the starter’s pistol right before Thanksgiving when it posted a request for comments on how to implement the new tax credit, which passed this summer as part of the One Big Beautiful Bill.
Requesting comment before developing draft rules is the first step in a process that ultimately will determine how much authority states have to put their own stamp on the program, how attractive it is for nonprofits, and how much flexibility families will have.
Treasury Department rules could influence whether some governors choose to have their states participate at all. The Democratic governors of Colorado and North Carolina already plan to opt their states in. Many others have said they’re waiting on federal guidance before they decide.
But on one of the key questions — can governors put restrictions on scholarship-granting organizations, such as requiring that they serve only low-income families or prohibiting them from discriminating against LGBTQ students? — the answer may already be no.
The request for comment indicates that Treasury expects to require participating states to include all organizations that meet the bare-bones statutory requirements, such as being a federally recognized nonprofit and serving more than 10 students who don’t all attend the same school.
“It’s really a take it or leave it scheme,” said Rachel Canter, director of education policy for the Progressive Policy Institute, a think tank.
The law doesn’t define “school,” and the Treasury Department has not explicitly asked for feedback on how it should be defined. That could lead to more questions: Could scholarships be used to cover preschool tuition? What about microschools or students who are homeschooled? School choice advocates want those students to have access to funds raised through the tax credit, but some are wary of creating a federal definition of school through the rule-making process.
People who believe in using private markets to drive educational change and in making public money available to religious schools were the biggest backers of the tax credit, and it’s most suited to serve their needs, said Scott Palmer, co-founder and managing partner of the consulting firm EducationCounsel.
But there is a “real opening,” Palmer said during a recent virtual panel discussion, for supporters of public education to push for what he called an “ecosystem” approach that would make it easy to use the tax credit to raise money for tutoring, arts and music enrichment, and other programming that would benefit public school students.
“When you receive a punch in the martial arts, you can either try to block it or leverage its power to throw the person over your shoulder,” he said. “I think we have an opportunity to think not only about how we might need to block, but how we might need to leverage.”
School choice supporters want flexibility, light regulations
The federal tax-credit scholarship program allows taxpayers to receive a dollar-for-dollar reimbursement for donations of up to $1,700 to eligible scholarship-granting organizations. Those organizations would distribute the money to students from families making up to 300% of local median income, a threshold that makes the majority of American families eligible.
How much money the tax credit generates will depend on how many people participate. Education Reform Now estimated that some 47 million taxpayers owe more than $1,700 in federal taxes each year. If 15% participated — far more than currently participate in most state tax-credit programs — that would generate roughly $12 billion a year. For comparison, the federal government spends about $18 billion a year to support high-poverty schools through the Title I program and about $15 billion a year to help offset the cost of special education services.
The money can go toward any expense allowed under Coverdell education savings accounts, which includes tuition, tutoring, specialized services for children with disabilities, and computers.
The law allows scholarships to go to students in public or private school, but it’s less obvious how the money could be used to benefit public schools and their students. Could a community group raise money to cover the cost of tutoring for public school students? Could that tutoring be provided by the public school itself or only by outside groups?
During the same panel conversation with Palmer, Karen Pittman, a founding partner at the consulting firm Knowledge to Power Catalysts, cited research that parents spend an estimated $232 billion on their children’s education and development. Groups like 4-H Clubs, for example, could use the tax credit to raise money or offer programs that families could pay for with their scholarships.
“We can give the Treasury the facts on how parents are currently spending their private dollars, and say, ‘Why don’t you allow this bill, this tax credit, to cover these things that parents are already covering, that they consider part of their young people’s education?’” Pittman said.
For their part, groups that have long supported vouchers and education savings accounts want minimal regulations that ensure money donated through the tax credit can support microschools and homeschool families, as well as those attending private school.
Supporters said they’re glad to see the rule-making process start early, so that scholarship organizations have more time to plan.
And they’re also particularly relieved that the Treasury Department doesn’t seem inclined to let governors put additional requirements on scholarship groups beyond what the federal law requires.
The tax-credit scholarship “is a tax law,” said Leslie Hiner, vice president for legal policy at EdChoice, an advocacy group. “It’s not an educational program.”
“This was intended to add to what already exists across the country and help that grow, and any action through rule-making that would go in the opposite direction of that cannot happen,” Hiner said.
Tommy Schultz, CEO of the American Federation for Children, said in a statement that the program’s goal “is to broaden educational opportunity, especially for low-income families, and the rules should encourage and make it as simple as possible for Governors and all states to opt in – as all should – while ensuring access is maximized and the program is protected from political interference.”
People have until Dec. 26, the day after Christmas, to submit their comments. Then the department will issue draft rules and regulations, and the public will have another chance to comment before they’re finalized.
Erica Meltzer is Chalkbeat’s national editor based in Colorado. Contact Erica at emeltzer@chalkbeat.org.
