Treasury Proposes Ending Tax Breaks for Race-Based School Aid

The Trump administration's Treasury Department and IRS have proposed rules that would strip tax-exempt status from private schools and colleges maintaining admissions, scholarships, or other programs that consider race, color, or national origin. The change would affect institutions currently using such criteria in any capacity, including efforts framed as addressing past discrimination.

Under the draft regulations, any consideration of race for admissions, financial aid, athletics, or school-supported activities could trigger loss of 501(c)(3) status. Treasury estimates the rules could reach 18,000 schools and 750,000 students receiving race-based scholarships. The proposal explicitly preserves religious schools' ability to select students by faith but bars race-neutral alternatives only when they serve as proxies for racial preferences.

The move follows the Supreme Court's 2023 Students for Fair Admissions ruling limiting race-conscious admissions at universities. Administration officials describe the policy as enforcing nondiscrimination, while the American Association of University Professors called it an attempt to weaponize civil-rights law against the groups it was meant to protect. The proposal is open for public comment and faces likely court challenges if finalized.

Schools could still assist disadvantaged students through income, geography, or first-generation criteria. No final regulatory text has been released, leaving the precise definitions of covered programs and enforcement mechanisms unresolved.