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Democratic governors have said for months that they were waiting for the Trump administration to explain exactly how a new education tax credit would work before deciding whether to opt in.
Now those rules are out, and supporters of the tax credit say the green light is on.
“Now you can see them, and it’s time to get going,” said former Virginia Gov. Glenn Youngkin, a Republican who was the first governor to opt in back in 2025, on a call with school choice backers Thursday.
“Every governor on the fence needs to opt in next week,” said Ashling Preston, director of federal affairs for the American Federation for Children, a school choice advocacy group.
For the moment, Democratic governors are still reading and reviewing them. Even New York Gov. Kathy Hochul, who has said she plans to participate unless she finds a “poison pill” in the program, declined Thursday to make it official.
The stakes are high. The program has the potential to raise billions in new money for schools and could dramatically change the education landscape in unpredictable ways. The money ultimately comes from the federal government in the form of tax rebates, but individual donors and nonprofit scholarship groups will determine how it gets spent.
The Treasury Department rules run 181 pages but leave some questions unanswered. They don’t provide what some Democratic governors say they most want — discretion to shape the program to ensure it helps the neediest students. And it remains unclear to what extent Democratic governors will sign on to a policy associated with President Donald Trump and congressional Republicans.
Private school students are sure to benefit. Public school students could too, but that might require more creativity.
Jonah Allon, a Hochul spokesperson, said Thursday the governor wants to make sure the program can be implemented so that it benefits all students and doesn’t affect state and local budgets.
So far 30 states have said they’ll participate, according to the IRS. Governors have until midnight on Jan. 1 to opt in for next year, and both supporters and critics are mounting increasingly intense pressure campaigns.
In addition to Hochul, 18 Democratic governors still need to make a decision. Here are four things in the rules that could influence their thinking.
States can’t pick which scholarship groups qualify
Despite comments Education Secretary Linda McMahon made to Congress that suggested otherwise, that’s been pretty clear since June, when the Treasury Department previewed the rules.
Some Democratic governors, including Oregon Gov. Tina Kotek, suggested that would be a deal-breaker. Her office did not respond to a request for comment this week.
Supporters of the program say Democratic governors shouldn’t be able to exclude, for example, a religious scholarship group because it won’t work with gay families, nor should Republican governors be able to exclude scholarship groups focused on equity.
Governors can still use their bully pulpit to promote groups that match their values, they say.
And the Treasury Department rules include some guardrails. Scholarship groups will have to conduct annual audits that include information about how they select students and track money.
Is that enough? Democratic Gov. JB Pritzker of Illinois previously said he’s worried about discrimination and the lack of accountability measures — concerns many critics share. A Pritzker spokesperson said Thursday the governor’s office is reviewing the rules and will “make a decision grounded in what best supports working families, students, and our public schools.”
It’s still unclear how tax-credit money can be used
Groups thinking about how to leverage the tax credit for public school students — a question that’s also on the mind of Democratic governors — are hoping to use the tax-credit for tutoring and after-school programs, but also for enrichment activities. Those might include field trips, summer camps, or sports and music lessons.
One idea would even help school districts shore up their budgets by peeling off a package of services, charging a fee for it, and then having families pay that fee with a scholarship.
Can they do that? The Treasury Department still hasn’t said.
These issues will be part of a separate rulemaking process, with guidelines due before the end of the year. But that might involve dipping into education policy, something the Treasury Department has said it wants to avoid. It also leaves little planning time.
The tax-credit law itself says scholarships can pay for the same things covered by Coverdell Education Savings Accounts. These include tuition, tutoring, special needs services, books, computers, and other supplies associated with enrollment in an elementary or secondary school.
That’s reason enough to opt in, said Jim Blew, co-founder of the Defense of Freedom Institute. Tutoring will certainly be covered, and there’s a huge unmet need.
Rules provide options for checking families’ income
Families earning up to 300% of area median income can qualify for scholarships under the law — that’s 92% of all school-aged children, according to an analysis by American Federation for Children. But how do scholarship organizations verify the income of so many families? And how much financial information would families be willing to turn over, especially for smaller scholarships?
The rules offer several ways to verify income beyond checking paystubs. Students can qualify if their family gets food stamps, housing vouchers, or other federal aid that already requires them to verify their income. Students can also automatically qualify if they attend a school in a very poor community or with a lot of other students from low-income families.
That eases the administrative burden on programs serving low-income families, a group Democratic governors have said must benefit for the program to have value.
But there are other reasons to think wealthy families might still come out ahead.
Treasury officials made fundraising for scholarships easier
The Treasury Department made several decisions that likely will help scholarship groups raise more money.
Married couples filing jointly will be able to get reimbursed up to $3,400, twice the $1,700 that an individual taxpayer can donate. And employers can set up payroll deductions for scholarships. Supporters of the program think that’s critical because it allows people who owe taxes but can’t afford to write a large check to contribute a little out of every paycheck.
Optimistic revenue projects — the Treasury Department estimated the program could be larger than Title I by 2030 — only come true if lots of people participate.
That matters for groups trying to support private school scholarships, of course — they likely will need multiple donors for each scholarship funded.
But it also matters a lot for public school groups. Scholarships for tutoring and after-school programming likely will be smaller, so each donation goes further, but many more children attend public school.
Erica Meltzer is Chalkbeat’s national editor based in Colorado. Contact Erica at emeltzer@chalkbeat.org.
Chalkbeat New York Senior Reporter Alex Zimmerman contributed.
