The passage of the H.R. 1, called One Big Beautiful Bill Act, by Congress in July 2025 included the first federal school choice program known as the Federal Tax Credit Scholarship Program. This legislation allows governors or a designated state official to opt in to a federally funded tax credit scholarship program for elementary and secondary education, which is slated to begin Jan. 1, 2027.
While state policymakers await further regulations to inform implementation decisions, we’ve outlined some key questions leaders are considering in the meantime.
What is the Federal Tax Credit Scholarship Program?
Through the program, individual taxpayers will be eligible to receive a dollar-for-dollar tax credit of up to $1,700 for their contributions to approved scholarship granting organizations (SGOs). In turn, the SGOs will be required to use these contributions to grant scholarships to students at private and public elementary and secondary schools located within their states. Students who are eligible to attend public school and whose family income is below 300% of their gross area median income will be eligible for the scholarships. The scholarships can be used for qualified expenses such as tuition, fees, books, supplies, room and board, uniforms, transportation, computer technology, equipment or internet access.
Which States Have Opted-in to the Program?
So far, Education Week’s Federal Private School Choice tracker has identified 31 states, which plan to opt into the federal tax-credit scholarship, and two governors (in Minnesota and Wisconsin) have said their states won't participate. Eighteen governors and the mayor of the District of Columbia have not formally decided or announced decisions.
Is There Eligibility Criteria for Scholarship Granting Organizations?
States that opt-in to the program are required to provide a list of eligible SGOs that meet federal statutory requirements outlined in the OBBBA by Jan. 1 of each calendar year. The reconciliation bill defines an SGO as an organization which maintains 501(c)(3) nonprofit status, is not a private organization and which maintains separate accounts for qualified contributions (i.e., no co-mingling of funds). Additionally, H.R. 1 Section 70411(d) require the SGO to:
- Provide scholarships to 10 or more students who do not attend the same school.
- Spend 90% or more of the revenue on the scholarships of eligible students.
- Provide scholarships for eligible expenses.
- Provide scholarships to eligible students, prioritizing those who received a scholarship in the previous year and those who have a sibling that was awarded a scholarship.
- Avoid earmarking scholarship funding for a specific student.
- Verify the annual household income and family size of eligible students who apply for scholarships to ensure student’s household income is not greater than 300% of the area’s median gross income.
It is currently unclear whether states can dictate their own eligibility requirements for SGOs in addition to the federal requirements.
Possible Financial and Structural Impacts
In many ways, the overall impact of the program remains uncertain because the ability for states to craft regulations for SGOs — and the forthcoming regulations from the U.S. Treasury Department — will significantly change how the program operates and ultimately impacts school communities. Despite the lack of regulations, experts have attempted to estimate the program’s financial and structural impacts.
There is currently no cap on the number of program participants, meaning the financial impact will depend on how many individuals in the state claim the $1,700 tax credit. Analysis from the Institute on Taxation and Economic Policy suggest 138 million people are eligible to claim the credit. If 10% of eligible filers claim the credit, that’s nearly $23.5 billion each year. If 20% claim it, that’s almost $50 billion. The Joint Committee on Taxation estimates a $25.9 billion cost over 10 years.
The program could compound pre-existing public school enrollment declines across the country. The National Center for Education Statistics projects that 40 out of 50 states will have fewer students five years from now than they currently have. Meanwhile, states that have adopted universal choice programs have seen average growth rates of about 25% between year one and year two of the program. Although the program does not directly impact state budgets because public schools rely on enrollment when it comes to local, state and federal funding, there are concerns around decreases in public school funding.
State leaders can be proactive in determining if this program is the right decision for their state. In anticipating federal regulations, the Urban Institute recommends that state policymakers assess their state’s current oversight infrastructure for monitoring charities, examine current regulations for private schools in the state, and develop estimates of potential revenue for SGOs.
