The federal government is launching a first-of-its-kind national school choice program. But unlike most federal education programs that dispense grants to states and school districts, this one works through the tax code, incentivizing taxpayers to donate money to scholarships for K-12 students.
By 2030, the Federal Scholarship Tax Credit program is projected to reel in more money than Title I (which targets disadvantaged students and is the U.S. Department of Education’s largest funding stream) translating into billions of education dollars for private and public school students.
But how will the program work? Will it actually deliver money to public schools and their students? And what the heck is a tax-credit scholarship anyway?
EdWeek is here to answer your pressing questions on the new federal program and what it means for K-12 education. We’ll update this FAQ as the program evolves.
Have a question we didn’t answer below? Send it to us at library@educationweek.org.
- How does the Federal Scholarship Tax Credit work?
- Is the federal scholarship tax credit a school voucher?
- Can public schools and students participate in the program?
- What expenses qualify?
- Can home-school students participate?
- How many states are participating in the federal school choice program?
- Can states set their own rules for how the program works within state lines?
- How big will the program be?
How does the Federal Scholarship Tax Credit work?
The federal government doesn’t directly fund this new program. Instead, it incentivizes taxpayers to donate money to fund public and private school scholarships.
Here’s how it works: The government awards dollar-for-dollar tax credits to taxpayers who donate to approved nonprofit scholarship-granting organizations, or SGOs. Individuals can receive tax credits on donations up to $1,700 and married couples on donations up to $3,400. SGOs in turn award scholarships to students to use for approved expenses such as tutoring at their public school or tuition at their private school.
The Federal Scholarship Tax Credit program was created through the One Big Beautiful Bill Act, which President Donald Trump signed into law in 2025.
Is the federal scholarship tax credit a school voucher?
The federal tax-credit scholarship shares elements with a variety of state-funded private school choice programs. But it diverges from these programs in key ways.
Traditionally, a school voucher refers to money a state gives to families for them to spend on private school tuition.
In this case, the federal government is funding awards more indirectly.
Under the Federal Scholarship Tax Credit program, individuals will donate money to these scholarship-granting organizations, and get their money back from the federal government—up to $1,700—in the form of a tax credit. The SGOs then award money to students.
While the federal government is not giving money directly to students, it’s paying for the program by not collecting tax dollars it otherwise would when it awards donors tax credits.
Tax-credit scholarship programs that work this way have existed at the state level for many years. But they’ve typically only funded private school tuition.
The federal program, meanwhile, has something in common with another type of state school choice program called an education savings account, which allows recipients to spend their scholarship money on a range of educational goods, such as home-schooling supplies or special education services, not just private school tuition. These programs have become increasingly popular at the state level in recent years.
Another difference from state private school choice programs is that the new federal program will cover some expenses for public school students (more on that below).
Can public schools and students participate in the program?
Yes. As long as the governor of their state opts into the program—they face a Jan. 1 deadline to make this decision, and they must decide each year—and as long as students meet the age and income eligibility requirements.
To qualify, students must be eligible to attend public school in their state, and their families can’t make more than 300% of their area’s median income. But that’s a generous threshold. On the low end, families in Oglala Lakota County, S.D., earning up $107,100 would be eligible, while on the high end, families in Santa Clara County, Calif., earning as much $616,500 would qualify, according to an analysis by the school choice advocacy group EdChoice.
But how will this work for public schools and their students, especially when public schools are supposed to be free?
Public school students can use their scholarships on eligible education programming or expenses, such as tutoring, before- and after-school programs, technology, transportation, and some special education services, according to the federal law. The idea is that public schools can then provide those services and charge fees for them, which students then pay with their scholarship funds.
Nonprofit groups affiliated with public schools can set up their own scholarship-granting organizations focused on serving public school students.
While many public schools already charge fees for supplemental services, and have foundations that could act as scholarship-granting organizations, there are a lot of unknowns about how all this will work in practice.
Unlike private schools, public schools face many legal and constitutional restraints that may make this fee-based model more challenging, and more work than simply charging tuition. Because of that, public schools and students might be less likely to participate, critics of the new program claim, and the scholarship program will end up disproportionately benefiting private school students.
Public school students could also seek scholarship-covered services, such as tutoring, from outside providers not affiliated with their school.
Additionally, critics have flagged concerns that the program will disproportionately benefit wealthy students because states can’t require SGOs to prioritize low-income students and most students receiving support from many state private school choice programs were already attending private school before qualifying for state support.
SGOs under the federal program will also be able to refuse to award scholarships to students based on disability, sexual orientation, or religion.
What expenses qualify?
While the IRS released proposed regulations on Oct. 1 outlining many aspects of how the federal program will function, it did not include detailed guidance on the eligible expenses a scholarship can cover. The IRS said it will share that additional guidance as soon as possible.
For now, what’s available describing scholarship-eligible expenses is the text of the federal law itself.
That statute lists expenses for tuition, fees, tutoring, special needs services, books, supplies, and other equipment “incurred in connection” with a student’s enrollment at a public, private, or religious school.
Elsewhere, the law lists room and board, uniforms, transportation, and extended-day programs “required or provided by a public, private, or religious school.” Additionally, the law says scholarships can cover technology and internet access expenses for years when the scholarship recipient attends school.
Can home-school students participate?
Technically, some can, but their participation will likely hinge on two factors: first, if their state categorizes home schools as private schools, and second, what the guidance around eligible expenses actually looks like once it’s released by the Treasury Department.
These same uncertainties affect microschools as well.
How many states are participating in the federal school choice program?
As of late October 2026, 31 states have signed up for the scholarship program. That figure includes all but one of the states led by Republican governors, two led by Democratic governors, three in which Republican legislatures overrode Democratic governors’ vetoes to opt in, and one state in which a departing Republican governor opted in before a Democrat took his place.
Three governors—all Democrats—have said their states won’t participate. And the leaders of 16 states—all but one of them Democrats—and the District of Columbia have yet to announce their intentions. While the deadline to opt in for 2027 is Jan. 1, governors do have the option to join the federal program (or withdraw) the following year and each year thereafter.
The key detail here is that while a state must opt into the program for students in that state to receive scholarships, no such geographic limitations apply to taxpayers. That means that residents of Oregon, which has opted out of the program, can still donate to scholarship-granting organizations in say, neighboring Idaho, which has opted in, and receive a tax credit for their donation.
This setup makes the calculation for governors in states that have resisted private school choice potentially tricky because education dollars that could benefit students in their state could instead flow outside their borders.
One other geographic quirk, which the IRS addresses in its rules for the program: students who live in a state that’s not participating but attend a school over the border in a state that has opted in—say, an Illinois resident student attending a private school in Indiana—wouldn’t be eligible for a scholarship.
Can states set their own rules for how the program works within state lines?
Not really.
Where states have the most control is in their decision to opt into the program or not, which they have to make at the start of each year. Once in, their other main role is to provide the IRS with a list of scholarship-granting organizations operating within state lines that meet the basic requirements for SGOs outlined in the federal law. States will also have to certify that those SGOs meet basic state requirements for charitable organizations, and they’ll receive annual audits from SGOs.
The proposed rules say that states cannot require SGOs to follow any additional rules that are more restrictive than what is in the federal law. For example, states can’t require that SGOs help only lower-income or public school students, or follow antidiscrimination requirements.
A group of five Democratic governors on Oct. 22 wrote a letter asking the IRS to clarify to what extent states can impose anti-fraud and other operational safeguards on SGOs, such as requiring them to maintain systems to protect student data. The governors also asked what they could do to encourage scholarship access for low-income students and students with disabilities, and whether they could publish demographic data on scholarship recipients.
How big will the program be?
Based purely on eligibility rules, 92% of students in the country could participate in the program if every state opted in, according to an analysis by the American Federation for Children, a school choice advocacy group. But of course, many states have not yet chosen to participate.
The U.S. Department of the Treasury estimates, based on the 30 states that had opted into the program by Oct. 1, that the program will grow to at least 2 million students and $26 billion annually by 2030. For context, that’s more than the $18.4 billion federal government spends on Title I.
While the federal government isn’t directly paying for all those scholarships, the cost to the U.S. Treasury comes in the form of lost tax revenue that it gives out in tax credits, which critics fear could eventually mean less money invested in other education services.
Another estimate for the program’s size comes from Congress’ Joint Committee on Taxation, which estimates that the federal tax-credit scholarship program will reduce federal revenue by $25.9 billion over 10 years. The committee projects the program will ramp up to $4.4 billion in 2034.
The law is silent on the size of scholarships for individual students.
