Congress Enacts First-Ever Federal Tax Credit for Education Scholarships

EdChoice ^ | July 10, 2025 | Robert C. Enlow

[T Ruth]

After years of debate and incremental progress at the federal level, July 2025 marked a turning point in the national conversation on educational choice. President Donald Trump signed the One Big Beautiful Bill Act into law—a sweeping package that included the most ambitious federal education tax credit program to date.

The One Big Beautiful Bill Act creates an individual, dollar-for-dollar tax credit of up to $1,700 per individual taxpayer for contributions to state-approved, federally recognized non-profits that distribute scholarships to eligible children. There is no cap on the total amount of donations and the program requires states to opt in. The program will start on January 1, 2027.

Here’s how the program will work.

To qualify for a scholarship, students must come from households earning no more than 300% of their state’s median income and be eligible to attend a public school.

Eligible expenses include all educational expenses that are covered by the Coverdell Education Savings Accounts, which requires enrollment at an eligible school. Once enrolled, eligible expenses include tuition, fees, tutoring, special needs services, books, supplies, computers, room and board, and transportation.

The organizations responsible for distributing these scholarships, known as Scholarship Granting Organizations or SGOs, must meet strict federal and state standards. To qualify, an SGO must be a federally recognized nonprofit (not a private foundation), serve at least ten students across more than one school, and allocate at least 90% of donations to approved educational expenses. SGOs must also verify the income of participating families and ensure that funds do not go to disqualified persons such as family members.

A few elements of the tax credit are particularly noteworthy:

1. It is a dollar-for-dollar credit with no cap on the total program.
2. It is a permanent tax credit with no sunset.
3. The income level is generous.

But the law isn’t without limitations, some of which could affect its practical impact, especially in blue states:

1. It is an opt-in program, meaning states that currently lack school choice or that have governors opposed to choice are unlikely to participate.
2. It requires private school enrollment before educational expenses of any kind can be distributed.
3. Governors or other entities/individuals designated by state law, must approve a list of SGOs.
4. It is only $1,700 credit meaning that it will take at least 588 donors for each $1,000,000 in contributions.

For all its ambition, the final result lands somewhere in the middle. Congress swung for the fences on school choice—and hit a single.

[lightman]

Not great, but it is a needed start.

I doubt that we will see this in Pennsylvania even though there is a parallel “Education Initiative Tax Credit” program for PA State Income Tax.

[fso301]

I would be much happier if it stipulated that field of study must be one in which 50+ percent of graduates can find employment within 12 months of graduation.

[tired&retired]

I am so happy to be retired and not auditing any more. This is an auditor’s nightmare to audit and verify compliance, especially the income verification of the recipients.

[Hieronymus]

I think this is aimed at primary and secondary schools, not post-secondary

The article could be clearer on this point.

[Hyman Roth]

Another government boondoggle

[No name given]

Unfortunately.