New tax rules could hit 18,000 private schools

The Trump administration is moving to penalize private schools and colleges that use race or ethnicity in admissions, scholarships, or other education programs.

The Treasury Department and IRS proposed new regulations Thursday that could strip these institutions of their federal tax-exempt status.

If finalized, the changes would take effect after May 2027.

Schools could be affected
The Treasury estimates that the proposal could affect as many as 18,000 private educational institutions across the US.

The rules would cover admissions, scholarships, financial aid, student loans, athletics, educational policies, and other school-supported programs.

However, the proposal would not bar religious institutions from maintaining their missions or admitting students based on genuine religious affiliation or membership.

Donors could also feel the impact
The measure could create financial consequences beyond schools themselves. If an institution loses its 501(c)(3) status, donations to it may no longer qualify for the same charitable tax benefits.

That could matter for donors because a tax law passed last year allows eligible taxpayers to claim a charitable deduction of up to $1,000 for individuals and $2,000 for married couples, even without itemizing deductions.

Scholarships face another risk
The rules could also impact students. Treasury and the IRS estimate that about 750,000 students attend institutions that could be affected and may receive scholarships tied to racial, ethnic, or national identity.

The move expands President Donald Trump’s broader campaign against diversity, equity, and inclusion programs. Many colleges have already closed DEI offices or changed programs after facing pressure from the administration.

Education groups argue the proposal could create new legal risks and hurt access to financial aid, particularly for students from disadvantaged backgrounds.

However, the government has not yet decided whether to finalize the proposal.