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Tax-exempt status threatened
The Trump administration’s Treasury Department and the Internal Revenue Service (IRS) issued a proposed regulation on Thursday to revoke federal tax-exempt status for private schools that engage in racial discrimination.
“The Treasury Department and the Internal Revenue Service (IRS) issued a proposed regulation on Thursday”
Treasury Secretary Scott Bessent said, "Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education," as the proposal would deny eligibility under section 501(c)(3) if a private school adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin.
The rule would cover admissions, educational policies, scholarships and loans, athletic programs, and any other program administered or supported by the institution, and it would apply to private elementary and secondary schools as well as universities, colleges, vocational schools, and technical schools.
The Treasury and the IRS estimate the proposal could affect up to 18,000 private educational institutions, and the final regulations would apply to fiscal years beginning on or after May 31, 2027.
The proposal would also eliminate provisions in IRS guidance that allowed schools to favor certain racial preferences in admissions, facilities, programs, scholarships, and financial aid, while not preventing a private school from maintaining a religious mission, curriculum, or programs of religious observance.
DEI policies in focus
ABC News described the proposal as a significant escalation in the White House’s campaign to eradicate diversity programs directed at Black, Hispanic and other minority students, saying the rule would strip private schools and colleges of tax-exempt status if they provide targeted help to students based on their race.
The regulation would specifically say that benefits in admissions, scholarships and facilities “would be incompatible” with the rule, and it would take effect after May 2027 if made final.
ABC News reported that Treasury Secretary Scott Bessent suggested that even policies no longer under the banner of DEI could be targeted, quoting him: “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature.”
The same ABC News report said the Treasury Department and IRS estimate up to 18,000 private schools, colleges and other education institutions could be affected, and it noted that the benefit saves many universities millions of dollars every year.
ABC News also tied the proposal to Civil Rights-era laws and to the Supreme Court precedent involving Bob Jones University, describing how the Supreme Court upheld the IRS’s decision to deny the school its exemption over a ban on interracial dating and marriage on campus.
Opposition and legal risk
The Morning Call, citing an AP report, said higher education leaders criticized the proposal and quoted Mike Gavin, president and chief executive of the Alliance for Higher Education, calling it “their most blatant attack yet to prevent working-class Americans and non-White people from accessing higher education and a better life.”
““their most blatant attack yet to prevent working-class Americans and non-White people from accessing higher education and a better life,””
The Morning Call also quoted Treasury Secretary Scott Bessent again, saying, “Chalking up race-based preferences as fair, inclusive, or diversity-enhancing does not change their discriminatory nature,” while noting the Treasury and IRS estimate up to 18,000 private schools, universities, and other educational institutions could be affected.
The Morning Call reported that Marjorie Hass, president of the Council of Independent Colleges, said the change would very likely affect donations, which are often earmarked for scholarships, and it quoted Tim Powers, vice president of the National Association of Independent Colleges and Universities, warning the proposed rule could create new compliance burdens and legal uncertainties.
In a separate account, the Washington Post framed the proposal as pressure on institutions that sought diversity in their classrooms, and it quoted Susan Svrluga’s description of the administration’s approach as “Discover cudgel. Wave cudgel. Find violations of laws that don’t exist. Threaten retribution. Go to court.”
The Washington Post also said the rule would be subject to a lengthy public-comment period and could go into effect in May, while the U.S. government’s stated rationale relied on Supreme Court rulings that tax-exempt status depends on compliance with “fundamental national public policy,” including the prohibition against racial discrimination.