The One Big Beautiful Bill Act (OBBBA) was not kind to public education. It included steep cuts to Medicaid and SNAP programs that millions of children rely on for health care and nutrition, often provided through public schools. It cut or capped loan programs that provide a pathway to higher education for low-income students.
It also created a new federal tax credit scholarship program that incentivizes individual donations to Scholarship Granting Organizations (SGOs) that can support families’ education-related expenses incurred at public, private or religious schools.
To be clear, the intent was to establish a nation-wide voucher-like system, redirecting billions in federal revenue away from public education toward private and religious schools.
Early drafts of the bill sought to impose a 50-state, voucher-like program with few quality-control mechanisms or protections against waste, fraud or discrimination and included tax shelter incentives that enabled wealthy “donors” to fund the program by donating stock or avoiding capital gains taxes. Several of those provisions fell away, but the use of these scholarships for private and religious school vouchers is still a primary focus and could threaten public school systems and equitable opportunity for public school students. But there is a bigger picture as well.
What ended up being established for the program is that tax credit donations are capped at $1,700 per individual — making raising large sums challenging — but there is no cap on the total amount of aggregate contributions and no sunset date. The pot will grow slowly, likely claimed first by those ready to recruit donations for private school scholarships. But if just one quarter of eligible taxpayers opt in, their contributions would generate nearly $50 billion annually that would pass through SGOs to cover eligible expenses identified by families. (For a quick comparison, that’s approximately three times the funding allocated for Title I programs).
[Related: Why unconstrained kids need unconstrained ecosystems]
States (most likely governors) will have control over whether and when to opt in and, potentially, some control over the terms (e.g., rules against discrimination, standards and reporting requirements).
The decision is a no-brainer for Republican state leaders. But it shouldn’t be an automatic pass for Democrats. Jon Valant, Director of the Brown Center on Education Policy at Brookings Institute, explains why in an aptly titled post, “The OBBBA’s tax-credit scholarship program is a mess that might be worth opting into anyway”:
“The scholarship program, passed, is terribly flawed … State leaders will need to decide whether to opt into a program that could become a major source of federal education funding. Red-state Republicans are sure to opt in. Blue-state Democrats have a decision to make. The question is whether they can mold this program into something that aligns with their state’s priorities. And it seems possible. There’s a way to squint at the law, flawed as it is, and see how this could become a boon for educational choice in red states and educational enrichment in blue states.”
On Nov. 25, the US Treasury issued a Request for Comments regarding issues that should be addressed in early guidance and, presumably, in anticipation of proposed regulations. Comments could be broader, but the request focuses on issues impacting the SGOs. Treasury is specifically looking for feedback on 1) the state certification process (how states should certify SGOs annually), 2) policies and procedures to ensure the certification process is accurate and complete, 3) issues involving statewide or multi-state SGOs, and 4) reporting and recordkeeping requirements. The comment period closes on Dec. 26.
There are many questions to be answered. And there may be many reasons to steer clear of this opportunity. But if you are a mature nonprofit organization invested in improving the well-being and success of marginalized youth and families, this should be on your radar screen. Here’s why.
- Scholarship Granting Organizations (SGOs) are defined as nonprofit organizations (excluding private foundations) — listed annually by each participating state — that provide scholarships for qualified expenses for 10 or more eligible students who do not all attend the same school and allocate 90% of revenue to scholarships. There is no limit on the amount of an individual scholarship.
- Eligible student is a young person eligible to enroll in public elementary and secondary school in the state and a member of a household whose income is not greater than 300% of area median gross income. Initial estimates that greater than 90% of students qualify.
- Qualified expenses include (1) tuition, fees, tutoring, special-need services, books and other equipment in connection with enrollment at a public, private or religious school; (2) room, board, transportation and supplementary services (such as extended-day programs) required or provided by a school; and (3) computer technology, internet access and other services used in connection with school. (Note: The scholarship provision was defined in part by reference to existing federal law establishing Coverdell Education Savings Accounts, particularly regarding the definition of qualified expenses.)
- School is not defined in OBBBA, but Coverdell defers the definition of school to the states.
Currently, state voucher programs are disproportionately used to support tuition and expenses for students enrolled in religious and private schools. Because SGOs raising funds to support private schools are already established, it is almost certain that the early beneficiaries will be these families and schools. But this tax credit does not sunset. There is time to broaden its use.
The opportunity to create a pathway for families to directly contribute to and benefit from SGOs they know and trust to help them assemble their children’s educational journeys is potentially too good to pass up — particularly if Treasury guidance and regulations establish a broad interpretation of “qualified expenses” and permit states or SGOs to set priorities, such as targeting scholarships to lowest income families.
The learning ecosystem already exists. It is just highly inequitable. In “Some Assembly Required,” Bellwether reported that families spent more than $230 billion annually on supplemental learning programs and services for their children in 2022. Currently, affluent families spend nine times more on learning enrichment than low-income families, according to the recently released “America After 3PM 2025” survey. This may be one way to balance that out.
Let’s not be naive. If the response to this new tax credit is strong, it could definitely be used to make the case for dismantling the federal education programs that support students and families most in need and at risk. We will need to be vigilant.
But as currently written, large youth-serving organizations with state offices, state afterschool networks and local OST intermediaries could qualify. To expand this opportunity in ways that address current (and potentially increasing) inequities, we will need to move quickly — both organizing at the grassroots level and tapping into our existing infrastructure as a field.
If we pull together, this tax credit could be an opportunity to make lemonade for everybody.
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In her columns, Karen Pittman is exploring the research behind the statement, “When Youth Thrive, We All Thrive.”
