The Trump administration proposes ending tax exemptions for schools using race-based programs, potentially affecting 18,000 institutions nationwide.
Trump administration proposes new school tax rule
The Trump administration is proposing a major new federal rule that could strip private schools and colleges of their tax-exempt status if they use race in admissions, scholarships or other school-supported programs.
The Treasury Department and Internal Revenue Service announced the proposal Thursday as part of President Donald Trump’s broader effort to dismantle diversity, equity and inclusion programs in education.
Administration officials argue that race-based preferences can amount to unlawful discrimination, including against white and Asian American students. Treasury Secretary Scott Bessent said schools cannot avoid that characterization simply by describing race-conscious policies as diversity or inclusion initiatives.
Up to 18,000 schools could be affected
Treasury estimates the proposed regulations could affect as many as 18,000 educational institutions across the country.
The department also estimates that roughly 750,000 students could potentially be affected because they may qualify for scholarships or other benefits tied to race.
The proposed rule would cover a broad range of school activities, including admissions, scholarships, educational programs, loans, athletics and other school-administered or school-supported programs.
It would apply when race, color, national origin or ethnic origin is considered “for any purpose,” including programs intended to address historical racial discrimination.
Race-neutral aid would still be allowed
The proposal would not prevent schools from assisting disadvantaged students through criteria that do not rely on race.
Treasury specifically cited factors such as household income, geographic location and whether a student would be the first member of their family to attend college.
Religious schools would also retain the ability to maintain religious missions and select students based on religious affiliation, according to Treasury.
That distinction could give schools a path to continue targeted assistance while avoiding policies that explicitly classify students by race.
Proposal follows Supreme Court admissions ruling
The administration’s proposal follows the Supreme Court’s 2023 decisions in Students for Fair Admissions v. Harvard and the University of North Carolina case.
Those rulings sharply restricted the use of race-conscious admissions policies at colleges and universities.
The new Treasury proposal would go beyond admissions, potentially reaching scholarships, athletics, facilities and other programs where schools use race as a factor.
The administration argues that the tax code can be used to pressure educational institutions to comply with its interpretation of federal civil rights requirements.
Universities warn of financial and legal consequences
Higher education groups have strongly criticized the proposal.
The American Association of University Professors said it was considering legal action, arguing that the administration’s approach improperly turns civil rights law against programs designed to address longstanding racial disparities.
Other higher education officials warned that the rule could create new compliance requirements and uncertainty for institutions that believe their existing programs already comply with federal nondiscrimination laws.
The financial stakes could also be significant. Tax-exempt status allows nonprofit schools to avoid certain taxes and helps make charitable donations to them tax-deductible. AP reported that the benefit can save universities millions of dollars annually and that uncertainty over the rule could affect donations earmarked for scholarships.
Harvard has already faced Trump pressure
Harvard University has emerged as one of the administration’s most prominent targets in its broader fight with higher education.
Trump has previously threatened Harvard’s tax-exempt status while his administration has pursued funding cuts and investigations involving the university.
The proposed Treasury regulations would give the administration another potential mechanism for challenging schools that maintain race-conscious programs.
Rule could face legal challenges
The proposal is not yet final.
It must go through a public comment process before the administration can finalize the regulations. Legal challenges are also expected if the rule is adopted.
The controversy centers partly on how federal civil rights laws should be interpreted when schools use race-conscious programs intended to increase opportunities for historically disadvantaged groups.
Supporters of the administration’s approach argue that government should not tolerate racial preferences regardless of which groups benefit. Critics counter that race-conscious programs can be designed to address historical discrimination and expand educational opportunity.
A major new front in Trump’s education agenda
The proposal represents another escalation in the Trump administration’s campaign against DEI policies in American education.
If finalized and aggressively enforced, the rule could force thousands of schools to reassess admissions practices, scholarships, athletic programs and other initiatives that take race into account.
For schools, the central question now is whether the potential financial consequences of losing tax-exempt status outweigh the benefits of maintaining race-based programs.
The outcome could have lasting implications for higher education, nonprofit fundraising and the future of race-conscious policies across American schools.
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