Trump Administration Proposes Tax-Exempt Status Changes for Schools Based on Race-Based Criteria

The Trump administration is proposing to revoke the tax-exempt status of schools that provide advantages to minority students based on race, including in admissions, scholarships, and financial aid. The Treasury Department estimates that over 18,000 schools could be impacted by this new rule, which would not apply to religious institutions or to race-neutral criteria such as family income or academic achievement. Treasury Secretary Scott Bessent stated, "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature." The proposed regulations would affect a variety of educational institutions, including private primary and secondary schools, colleges, universities, and trade schools, even those that do not receive federal funding. An example cited is the Kamehameha Schools in Hawaii, which is facing legal challenges for giving preference to Native Hawaiian students. The new rule is set to take effect for taxable years beginning on or after May 31, 2027, allowing institutions time to adjust their policies. The rule follows a 2023 Supreme Court ruling that determined race cannot be used in admissions processes, which has influenced financial aid practices as well. The percentage of scholarships targeting specific races has decreased from 15% in the 2023-2024 academic year to 11% by 2026, according to the National Scholarship Providers Association.