While the Trump administration has been trying to reduce the federal role in education policy, it successfully pursued one new policy in the space that most conservatives are happy about: the federal scholarship tax credit.
On the policy wonk side, there are questions and discussion about whether the new policy violates the spirit of federalism (leaving states to work on education policy), and there are some concerns about making sure enough people donate, but overall, the program is a win for families seeking education choice.
Families and schools should understand this new program so they can make the best use of it.
Below, we get into the nuts and bolts of the federal scholarship tax credit (FSTC) program, along with broader analysis of its impacts.
What is the federal scholarship tax credit?
Established by the 2025 “One Big Beautiful Bill,” the Federal Scholarship Tax Credit program allows individuals to get a dollar-for-dollar tax credit (up to $1,700 per year) for donating to scholarship-granting organizations (SGOs) that provide scholarship funding to families for education expenses, including tuition, fees, supplies, tutoring, and more.
Scholarships are provided to families through SGOs, or basically, nonprofits with the mission of providing scholarships to students, which handle tasks such as accepting donations and awarding scholarships according to their unique criteria. SGOs must meet federal eligibility requirements and be on a state-approved list to participate in the program.
States must opt into the program for families to receive scholarships. Utah has already opted in. Regardless of what a state decides, individuals from any state can donate to any approved SGOs in another participating state and still receive a tax credit.
What are important upcoming dates?
Individuals can begin donating and receiving tax credits starting Jan. 1, 2027 (for taxes filed in 2028).
SGOs may start providing scholarships any time after that, resulting in varying timelines, so families will want to check in with SGOs for specifics.
The public should be aware that the IRS and U.S. Department of the Treasury are scheduled to issue proposed guidance and regulations at the end of September 2026. Offering public comment to proposed guidance is an important civic opportunity that people should feel more encouraged to take advantage of. You can learn more about how to submit a comment here.
Where can families find SGOs that offer these scholarships?
Families looking for scholarships to pay for educational expenses should be aware of both state programs passed by the state legislature (like education savings accounts and state tax credit scholarships) and SGOs participating in this new federal program.
Remember, each state that opts in must compile a list of all SGOs that are eligible and choose to participate. Stay up to date on which SGOs ultimately participate in the program. Some SGOs serve any state that opts into the federal program, some serve multiple states, and others only serve one specific state. One great resource on the federal scholarship tax credit is EFTC Credit, which, among other details, lists any existing SGOs by state.
Are state-based education programs stackable with this funding?
Yes, generally scholarships awarded through the FSTC can be stacked with scholarships that come through state-based education savings account programs or state tax credit scholarships, subject to each program’s rules. Individual SGOs or other state programs may limit eligibility based on whether you have received some other type of scholarship, so inquiring about eligibility is important.
What’s the impact of these scholarships on public schools?
Public school students can benefit from these scholarships as well. For instance, funds could be spent on tutoring, education materials, or other specialized services. Because these funds do not come from a government spending program, the program is not taking funding away from public schools, but it can support its students who are awarded the scholarship.
How many states have opted in to the program?
Most states have already opted in, and both red and blue states are among them. According to the EFTC participation tracker at eftccredit.com, “As of July 14, 2026, of the 50 states and the District of Columbia, 30 have opted in to the federal Education Freedom Tax Credit (IRC §25F), 1 more has announced it will join, 2 governors have vetoed opt-in legislation, 4 have declined, and 14 have not yet decided.”
Gov. Phil Scott, R-Vt., is the only Republican governor in the country who has not opted into the federal school choice tax credit scholarship program. Instead, he signed a bill that prohibits spending funds on private school tuition, limiting their use to tutoring, after-school programs, and contracts with local school districts.
Conclusion
This new program will certainly be one to study for years to come. On the macro level, education policymakers, leaders, and families will want to follow up on how the program has increased access to education choice for families; to what degree it has caused political battles in states without education choice policies; and whether there has been conflict due to federal entanglement as federal administrations change.
Families and individuals should learn about the FSTC, ask SGOs for more details, or consider donating so other kids can get scholarships they need for their unique education paths. This is one way to provide the best education for the next generation.
