Treasury Clarifies Details of New Federal School Choice Program

The new school year is well underway, but federal officials are looking ahead to next year’s school calendar and a new federal school choice option. This week, the U.S. Department of the Treasury released proposed and temporary guidance on the program to help state officials and families prepare.

As part of the One Big Beautiful Bill signed by the White House in July 2025, lawmakers included a federal tax-credit program for K-12 students that will take effect next year. The federal initiative is modeled after state education choice opportunities that make individuals and/or corporations eligible for tax credits on donations made to private school scholarship organizations.

The organizations then use the contributions to award K-12 private school scholarships to eligible students. Arizona lawmakers adopted the first such program in 1997, and policymakers in states across the country have approved similar provisions.

The federal tax credit only applies to individual, not corporate, tax filers and is capped at $1,700 per individual ($3,400 for married couples filing jointly). A unique—and troubling—provision in the federal program is that scholarship organizations can raise money for public schools.

Parents and taxpayers should wonder why this provision was included in a law modeled after private school choice laws. Today, the average per student spending in traditional schools has climbed to more than $20,000 per child even as reading and math scores in most grades have been on a steady decline since before the COVID-19 pandemic. Meanwhile, state private education choice options result in a cost savings to taxpayers.

Treasury officials are responsible for establishing rules for the new federal program, and this week’s announcement contains a proposed set of long-term regulations and a temporary set of rules under which to operate next year.

Under the law, students are eligible for scholarships if their household income is no more than 300% of the median gross income in their area. This broad eligibility provision will open the scholarships to more than 90% of K-12 students in the 30 states where lawmakers have agreed to participate.

The new guidance specifies that household income measures would not include indicators of net worth such as imputed return on home equity.

The rules also say that state lawmakers cannot add restrictions to participating scholarship organizations on top of the existing federal law. These rules should protect private organizations from regulatory creep that could otherwise hamper operations.

Treasury officials included more details on audits and financial transparency measures for scholarship organizations. These safeguards for taxpayers are welcome because the potential fundraising campaigns will be sizeable and run alongside public school spending formulas.

Traditional public school financing is notoriously complex and is composed of a dizzying array of funding streams, some related to decades-old court orders in some states that attempt to equalize spending levels across school districts. Public education spending formulas are already opaque and inefficient, which means any new funding sources deserve careful oversight.

Treasury personnel should review the new public school activity carefully. Fraudulent spending by public school employees is widespread, and the nature of audits only allows officials to capture misspending after it occurs. As a result, public school fraud can take place for years before being resolved.

Individuals in Minnesota defrauded taxpayers of $250 million in spending meant for meals for low-income students over the course of three years (2019-2021) before officials caught on to the scheme. Stories such as this are far too common across public schools, involving state, local, and federal taxpayer resources.

Treasury’s new rules for the federal tax credit are welcome and demonstrate attention to detail on issues such as student eligibility and scholarship organization operations, as well as financial transparency. But taxpayers should ask why public school administrators will have yet another way to raise money, when research finds higher levels of school spending does not lead to student success.

Treasury must consider rules for the law as written, which for now includes public school participation. U.S. Department of Education staff are in the process of closing their agency and downsizing federal education responsibilities overall to empower parents and state and local policymakers. So as Treasury and Education officials look ahead to the next school year and the years to follow, they should urge federal lawmakers to consider that access to still more spending is the wrong federal policy for assigned public schools.

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