Private Generosity, Public Impact: How the New Federal Tax Credit Scholarship Program Is the Next Chapter of Educational Freedom

Overview

Over the past several years, the country has seen a monumental shift in both parental preferences and state policies toward expanding school choice.^1-2 There has been consistently strong support for school choice programs, especially among parents with children in school.³

Demand for more choice in education exploded after the pandemic, as parental dissatisfaction with the status quo climbed rapidly.⁴ Enrollment data indicates a shift from traditional public schools toward alternatives like private schools and homeschooling.⁵ These patterns indicate that parents are actively seeking a better academic fit, safety, and flexibility.⁶ The result has been a massive increase in the number of states offering universal school choice programs.⁷

Fortunately for parents and students, the rise in popularity of school choice programs has translated into political momentum. Today, 33 states have at least one private school choice program operating within the state.⁸ These programs range from education savings accounts, state-funded scholarships, and even public choice options such as charter schools, magnet schools, and public school open enrollment policies. States have also provided tax credits for private donations to scholarship organizations.⁹

In July 2025, Congress and President Trump capitalized on this momentum by passing the One, Big, Beautiful Bill, which included a federal tax credit scholarship for donations to qualifying Scholarship Granting Organizations (SGOs).¹⁰ Under the new law, donors can receive a dollar-for-dollar federal tax credit up to $1,700 if they donate to eligible SGOs that award private school choice scholarships.¹¹ But before students may benefit from this opportunity, states must opt in to the program.

Distinguishing the federal tax credit program from state-level school choice programs

While the new federal tax credit scholarship created under the One, Big, Beautiful Bill draws inspiration from existing state-level tax credits, it expands on school choice policies rather than replacing or duplicating what states already offer.

Unlike most state school choice programs, which rely on state appropriations, the federal tax credit scholarship uses voluntary private contributions to qualified non-profits, avoiding any constitutional conflicts that have historically restricted the availability of parent choice in states. Individuals contribute to SGOs and, in return, receive a federal tax credit of up to $1,700.¹² Qualifying SGOs receive donations and award scholarships to eligible students.¹³ These SGOs, rather than state education departments, are responsible for determining how and where those scholarship dollars are distributed and have a menu of allowable education services and items they can award scholarships for.¹⁴

Despite being a federal tax credit, the federal government’s role is limited primarily to standardizing tax treatment and verifying taxpayer eligibility, leaving the operational details to the non-profits and the eligibility of SGOs to the states. Rather than seeking to replace existing state-level education programs, this new federal tax credit provides a way for private citizens to expand opportunity for students and families through voluntary, charitable donations for which they can receive a dollar-for-dollar credit.¹⁵

Empowering families through greater educational flexibility

One of the hallmark features of SGO-based scholarship models is the intentional flexibility in serving students and families with specific needs.^16-17 Unlike many traditional school choice programs that offer a fixed award per participating student, SGOs commonly incorporate mechanisms to prioritize eligible students and customize scholarship amounts to match situational needs.¹⁸ Under the new federal tax credit framework, these features are positioned to become national in scope.

First, many SGOs set income eligibility thresholds to ensure that scholarships are directed toward students who need them the most, and the same is true of the new federal tax credit, which limits participation to students with a household income no higher than 300 percent of the area median gross income.¹⁹ This threshold allows families who earn well above the poverty line—but still face affordability constraints including substantial inflation over the last five years—to qualify. In states, this translates into SGOs prioritizing low-income students, but also middle-income students who traditionally might not qualify for aid but still face limitations in covering the full cost of private-school tuition, transportation, or assistive technology.

Second, SGOs can award scholarships in a customized manner rather than a uniform amount. Rather than a one-size-fits-all or one-school-type approach, SGOs can tailor awards to fill specific needs, whether that is tuition, transportation, books or supplies, assistive technology, or other supplementary services in public or private schools.²⁰ In practice, this means a student with special education needs might receive a larger award than a student whose primary barrier is tuition alone. This flexibility to allocate funds to non-tuition expenses significantly broadens the potential for SGOs to respond to non-traditional, such as public-school students, or under-served student populations who may need substantial additional education supports.

Third, SGOs often explicitly serve specialized student populations—such as children with disabilities, rural students with limited access to non-public alternatives, or those with health challenges whose schooling may require non-standard supports.²¹ For example, state-level SGO models have been used to direct funds toward students in remote areas where private-school availability is scarce, or toward students whose public-school placement lacked the supports needed for a child with unique learning or medical needs.²² By embracing this flexibility, these programs can reach students who might otherwise be unable to access standard school choice pathways.

Lastly, state examples provide definitive proof of how SGOs can expand access for targeted families. In Ohio, SGOs awarded more than $1.7 million in scholarships during one school year to more than 600 students across roughly 80 schools, with students from low-income families receiving priority.²³ Similarly, in Florida, SGOs awarded $568 million in scholarships to more than 85,000 participating students, encompassing nearly 2,000 schools.²⁴

SGO school choice models offer both eligibility and operational flexibility—reaching low-income students, students with specific financial or educational needs, and students in an under-served population. As the federal program rolls out, the SGO model used in states is set to expand nationally, ensuring the next wave of school choice is not limited to blanket awards for tuition alone but can be tailored toward meaningful gaps in education opportunity.

Wider educational impacts and implications

Although the new federal tax credit scholarship primarily aims to fund educational options for students and families, it also carries broader implications for both public and private education systems. While some groups will position SGOs as competitors to public schools, SGOs should be seen as encouraging a complementary relationship in which all students can benefit from expanded funding and diversified services.

SGOs can and should function alongside traditional public education systems, rather than solely serving students in private schools. Students who wish to attend their local public school—or open enroll into another district—but need an item or service that the school cannot provide can request a scholarship to fill the gap. By channeling privately funded scholarships to families, these organizations help alleviate some of the enrollment and financial pressures on public schools while broadening access to alternative options. This structure allows public schools to continue serving as the central component of the education system while also encouraging innovation and responsiveness to family needs.

Public schools may also realize tangible benefits by adapting to serve students who receive SGO-awarded scholarships. For example, districts could offer à la carte educational services—such as tutoring, elective coursework, or extracurricular programs—to students that are not enrolled in public school. These opportunities allow schools to explore additional revenue streams while maintaining their core obligations to enrolled students. Importantly, such arrangements cannot supplant required services or programs that are already offered free of charge, but they can allow schools to leverage existing capacity to serve a wider student base. The federal tax credit program should directly incentivize public schools to expand specialized offerings and benefit from the awarded scholarships.

Fiscally speaking, the program’s structure—with no federal cap on total credits and broad donor eligibility—uniquely positions it as a long-term funding apparatus for the customization of education that does not create any new spending liabilities for states.²⁵ Since the program relies solely on voluntary private donations, state budgets remain unaffected by scholarship distributions, except that there is a positive economic impact to states that opt in to allowing their taxpayers to receive this credit. States that choose not to participate could see their own taxpayer dollars flow to SGOs in other participating states. The generosity of their residents will benefit students across state lines rather than in their home state and have no economic impact in their state. Families may even choose to move to states that have opted-in where their child can access a scholarship.²⁶

The new federal school choice tax credit represents more than just an expansion of educational opportunity—it marks a reimagining of how public, private, and philanthropy can collaborate to strengthen the broader K-12 education landscape. By incentivizing private donations to this partnership, the tax credit underscores that educational improvement does not have to be a zero-sum pursuit. Its flexible, national, privately funded design supports innovation at every level—encouraging states, schools, and families to work toward a more responsive and successful education system for all students.

The Bottom Line: States should opt in to the new federal tax credit scholarship program.

At its core, the new federal tax credit scholarship is about expanding opportunity through the generosity of private citizens rather than through additional state-level spending. By transforming charitable giving into a mechanism for expanding education access, the law reinforces the principle that empowering families does not have to be accomplished by taxpayer dollars alone.

This model offers a blueprint for long-term school choice sustainability and educational customization. It merges philanthropy and freedom, allowing individuals to invest directly into the next generation while respecting state, local, and community priorities. Ultimately, this approach represents a balanced path forward—one that prioritizes education options, encourages generosity, and builds a more responsive education system for all students.

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