Is a School Choice Revolution Coming?

By Corrinne Vidales

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Contained in the One Big Beautiful Bill, enacted July 2025, is a provision that was previously called the Educational Choice for Children Act. This provision establishes a federal tax credit scholarship program effective January 1, 2027. The new program is not only a win for taxpayers; nonprofit schools will have doors opened for students who previously may have been out of reach.  

The core incentive of this program is a 100% federal income tax credit for cash contributions to scholarship granting organizations (SGOs), rather than a standard charitable deduction. This provides a dollar-for-dollar reduction in federal tax liability, up to a certain dollar amount (the “statutory cap”).

SGO funds will not be limited strictly to tuition. They may cover "qualified elementary or secondary education expenses" as defined in IRC § 530(b)(3)(A), which includes tuition and fees, books, supplies, and equipment, academic tutoring, special needs services, computer technology and internet access used by the beneficiary and his family. Families with a household income not exceeding 300% of the area median gross income will be eligible for scholarships from a qualifying SGO.

Some of the details are still murky, as the US Treasury Department is still working to finalize rules. The rules are expected to be released in the summer of 2026.  

For an organization to be recognized as an eligible SGO for the federal tax credit program, it must undergo a verification process administered primarily by the state in which it operates, which then reports the organization to the federal government. Governors will opt in to the program and submit a list of eligible SGOs to the Secretary of the Treasury annually.  

These are the criteria for an SGO to be certified by the state:  

• Must be a § 501(c)(3) tax-exempt organization.

• Must not be a private foundation.

• Segregation of funds: Must maintain separate accounts exclusively for qualified contributions to prevent commingling with other funds.

• Must spend at least 90% of its total income (not just contributions) on scholarships for eligible students.

• Must award scholarships to at least 10 students who do not all attend the same school.

• Scholarships must be used only for qualified elementary and secondary education expenses.

• Must prioritize students who received a scholarship the previous year, followed by siblings of those students.

• Cannot earmark funds for a specific student.

• Cannot award scholarships to "disqualified persons" (e.g., substantial contributors, managers, or their families).

Roughly 18 states currently have some existing SGO program. It remains to be seen how many of these will be able to participate in the federal program.  

Now is the best time for private school boards and leaders to start thinking about how to capitalize on this new opportunity for growth. In Ohio, the state SGO program has made private school tuition more accessible to families. It has also been a funding mechanism for the launch of new schools, generating accessible funds for students on day 1 when they step into their classrooms.  

Schools will want to partner with an existing, or newly created, SGO that can comply with the requirement that the SGO provide a minimum of 10 scholarships to students that do not all attend the same school. The Ohio Christian Education Network Scholarship Granting Organization, for example, is a network of over 100 participating Catholic and Evangelical schools in Ohio that will be a part of the national Christian Education Network Scholarship Granting Organization (CEN SGO). An existing organization with previous experience running a state SGO program is a great place for schools to start when thinking about how to award funds and abide by accounting and other regulations. Building that connection with an existing SGO now will go a long way in prepping donors, students, and school personnel for a 2027 launch.

Currently, the U.S. Treasury allows for governors to file a Form 15714 Advance Election to Participate Under Section 25F for 2027. This essentially shows which states intend to opt into the program when the time comes. There is not yet an official list of which SGOs will be eligible, but the states that have filed their intent to participate are: Virginia (intent to participate was filed by Governor Youngkin last year but the current governor has left it unclear as to whether Virginia still intends to participate), Mississippi, and Georgia. Other states that have taken some other official action stating their intent to participate are: Alabama, Alaska, Arkansas, Idaho, Indiana, Iowa, Louisiana, Missouri, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, West Virginia, and Wyoming.

School choice will take the nation by storm with this new tax credit. Donors can essentially reroute their tax dollars from the federal government and send the money to a faith-based school instead. Meanwhile, much of the regulatory scrutiny will not be the responsibility of donors or schools, as all compliance issues¹ are routed through the SGOs who will bear the burden of audits, recordkeeping, charitable registration, and any other requirements. If a school does not already have a plan in place for how to take advantage of the tax credit, seeking out an SGO is the first step. Then, schools can begin the process of educating donors and parents about this new opportunity — something most SGOs are equipped to help with!

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¹ Note that the IRS is in the process of creating a form that will require SGOs to file an annual report of some kind, which will allow the IRS to keep track of donors to SGOs and oversee other regulatory issues related to SGOs. More details on this filing process will likely be finalized later in 2026.