The debate over how America funds its schools just hit a fever pitch. As of late 2025, former President Donald Trump’s “One Big Beautiful Bill”—a sweeping education and tax reform package—has locked in one of its most controversial features: a $1,700 federal tax credit for donations to private school scholarships.
Supporters are celebrating it as a long-overdue win for school choice. Critics call it a financial earthquake for public education. Either way, the move marks one of the most significant shifts in U.S. education policy in decades.
What the New Law Does
On Friday, the Internal Revenue Service (IRS) and the U.S. Treasury Department finalized the provision through Revenue Procedure 2026-6, paving the way for implementation starting January 1, 2027.
Here’s how it works:
| Key Detail | Description |
|---|---|
| Who qualifies | Any taxpayer who donates to a certified Scholarship-Granting Organization (SGO) |
| How much | Up to $1,700 in non-refundable federal tax credits |
| What counts | Cash donations made to SGOs that provide K–12 scholarships for low- and middle-income families |
| When it begins | Tax year 2027 |
| Approval process | SGOs must be authorized by one or more states for that tax year |
Essentially, the federal government will now reward private donations to nonprofits that help families pay for private-school tuition—a mechanism that has, until now, existed only at the state level.
It mirrors existing scholarship tax-credit programs in states such as Florida, Arizona, and Pennsylvania, which let donors claim state-level tax reductions for similar contributions. This federal version, however, brings Washington into the mix for the first time.
The Politics Behind the Move
The Trump administration has billed the tax credit as a “win for families and freedom.” By allowing individuals and corporations to offset their tax bills in exchange for funding scholarships, the government hopes to make private and parochial education more accessible for middle-income parents.
Education Secretary appointees under Trump argue the credit empowers parents rather than bureaucracies: “If parents can choose their child’s doctor, why can’t they choose their child’s school?” one senior official said during a recent briefing.
But not everyone’s buying that pitch.
Public education advocates—including teachers’ unions and state superintendents—say the policy is an indirect siphon of public dollars into private institutions. The Education Week editorial board noted that federal incentives of this scale “would channel more public money to private education than all existing competitive grants for public schools combined.”
The Numbers: Private vs. Public
According to 2021 U.S. Census Bureau data, there are roughly 65.1 million public school students nationwide, compared with 14.4 million private school students.
Yet, projections from Forbes suggest the new tax-credit program could pump five times more money into private school scholarships than the federal government currently allocates to public education through competitive K–12 grants—and nearly twenty times more than it spends on charter school funding.
Critics argue this will worsen disparities between well-funded private schools and resource-starved public districts, especially in rural and low-income communities.
The $7 Billion Question
Adding to the tension, the administration has temporarily frozen about $7 billion in federal education funds, citing what it calls an “efficiency audit.” Officials insist this is a standard budget review.
But advocacy groups, including the National Education Association (NEA), say the freeze could be a precursor to redirecting funds toward private education programs. “You don’t conduct an efficiency audit two months before redirecting billions—unless you already know where the money’s going,” one policy analyst told The Washington Post.
The U.S. Department of Education has yet to confirm whether those funds will be reinstated before the 2026–27 school year.
Who Benefits—and Who Doesn’t
For families already paying private or parochial tuition, the $1,700 tax credit represents a tangible break. It’s non-refundable, meaning it can reduce your federal tax bill but won’t create a refund beyond what you owe.
When combined with state-level scholarships or education savings accounts (ESAs), it could offset several thousand dollars in tuition annually. Families using 529 savings plans—which allow up to $10,000 per student per year to be spent on K–12 expenses—can stack these benefits for even greater savings.
| Financial Tool | Use Case | Federal Benefit |
|---|---|---|
| Scholarship-Granting Organization (SGO) | Donations create tax credit | Up to $1,700 |
| 529 Education Savings Plan | Tuition, books, supplies | Tax-free withdrawals |
| State-level scholarships | Income-based tuition help | Varies by state |
For low-income families, however, many experts say the policy doesn’t move the needle enough. “A $1,700 tax credit doesn’t make private school affordable for a family earning $45,000 a year,” says Dr. Carla Benson, an education economist at the University of Michigan. “It’s a policy that mostly helps middle- and upper-income taxpayers.”
What Research Says
While proponents argue private schools deliver better outcomes, the data paints a more nuanced picture. A major longitudinal study published in Educational Researcher found no statistically significant long-term academic advantage for students who attended private schools once factors like family income and parental involvement were controlled.
In other words: resources matter more than the label on the school gate.
What Happens Next
The new federal SGO tax credit will take effect on January 1, 2027. Several states—particularly those already running scholarship programs—are expected to participate immediately. Others, like California and New York, may resist implementation until they can assess the local impact.
Politically, the policy is expected to become a major 2026 midterm flashpoint. Conservatives view it as a moral victory for parental control and competition, while progressives warn it accelerates the privatization of public education.
FAQs
When does the new private-school tax credit begin?
January 1, 2027, for the 2027 tax year, according to IRS Revenue Procedure 2026-6.
Who qualifies for the $1,700 tax credit?
Any taxpayer donating cash to an approved Scholarship-Granting Organization (SGO) that funds K–12 students from low- or middle-income families.
Is the credit refundable?
No. It’s non-refundable, meaning it reduces taxes owed but doesn’t result in a refund beyond your liability.
Will this hurt public schools?
Possibly. Critics warn it could reduce the tax revenue available for public education, though the administration insists it’s privately funded.
Can families still use 529 savings plans alongside this credit?
Yes. Parents can withdraw up to $10,000 per student per year from 529 accounts for K–12 tuition and eligible expenses.
