Everywhere I look for information about this new federal OBBBA scholarship law, I find arguments from ideologues who are already well entrenched in their feelings about school choice forcefully advocating that Illinois opt out altogether or stridently declaring that we’d be stupid not to take the free money. (For example, here’s a letter from numerous orgs asking Governor Pritzker to opt out,  Comptroller Mendoza editorializing in favor, four Democratic Governors opting out while one opted in, and Illinois Policy Institute supporting and organizing counties across the state to ask a ballot question about it.)  

What I see is a whole lot of gray area and questions. And I’ve been asking them. So, I thought I’d share what I’ve learned so far.  

To be sure, this isn’t the kind of program I would have designed or supported if my goal was to improve educational outcomes and opportunities for the kids left furthest behind in the current system. Looking at the federal law, there are no restrictions on the quality of the programs, requirements for measurement of results, provisions against discrimination of who enrolls, or attempts to balance where scholarships are awarded to enhance equity. Upper-middle class students are just as eligible for scholarships as the most impoverished students. 

But the fact is that the program exists. Illinois taxpayers are eligible for the tax credit whether or not Illinois opts in for our students to receive scholarships. There is no impact on state revenues. The federal coffers have potential to take a big hit, and it’s anyone’s guess whether that will result in lower allocations to public education in future years vs. getting added to a growing deficit vs. spending on military, Medicaid, SNAP, or other programs – but again, Illinois taxpayers will still be able to donate – at no cost to themselves – to scholarship programs in Indiana or Iowa whether or not we participate. 

It’s a provision of H.R. 1, better known as the “One Big Beautiful Bill Act” (OBBBA), giving taxpayers an up-to-$1,700 credit on their federal income taxes if they contribute up to $1,700 to a “Scholarship-Granting Organization” (SGO) starting in 2027. That’s a dollar-for-dollar credit, and there’s no cap on the number of taxpayers who can use it. So, this has potential to become a huge program.  

Governors essentially have the unilateral power to identify SGOs; there’s no need for legislation, or consensus from education agencies, or anyone else. OBBBA requires SGOs to be non-profit organizations that spend at least 90% of funds on scholarships, grant scholarships to more than one school, and verify that family income is less than 300% of the area median income (which is about $360,000 for a family of 4 in the Chicago metro area).  

So far, it looks like many types of scholarships would qualify – tuition to private schools; tutoring, afterschool programs, and summer camp for students in public schools; career development and workforce training for high schoolers; extracurricular activities; and probably lots of other things I’m not thinking of yet among a broad ecosystem of programs. The key is that there must be a non-profit set up to administer the scholarship (and that will take some effort to stand up this sort of organization – here’s a blog about how to start one). 

The main question on my mind isn’t what can be funded, so much as it is what can be blocked from funding. How much power will governors have to pick and choose who gets on their list? We won’t know until late spring/early summer when the Department of Treasury issues regulations. By law, this program is super flexible and governors have a lot of autonomy and power to decide. But in regulations? Department of Treasury wrote in its request for public comment that it “anticipates” requiring inclusion of all SGOs who meet the minimum criteria and request to be on the list.  

Under the minimum criteria, here are some examples of what works and doesn’t work: 

• If the for-profit House of Violins wanted to accept donations to give free violin lessons to children who live in a nearby public housing high-rise, that wouldn’t work because it isn’t a non-profit. If it created a non-profit arm to receive donations for free violin lessons, that also wouldn’t work because scholarships can’t go to just one school. If all the music schools in the city jointly created a House of Music non-profit to fund lessons for students in multiple schools, that would seem to work.  
• For another example, if Main Street High School wanted to raise funds to award scholarships for students to participate in a summer enrichment program, they’d have trouble since the school isn’t a non-profit organization. If the Friends of Main Street High School Foundation agreed to raise the funds, they would have to broaden their reach to give to more than one school and verify family income to ensure students receiving scholarships fall under the 300% average area median income threshold.  

In an era of unprecedented federal actions against public education, this could be a real opportunity to boost funding and open doors for students. Every public school, after-school program, park district, and tutoring provider could choose to partner with a nonprofit that meets the criteria to qualify as an SGO, widely disseminate information to their constituents to raise funds, cast a wide net to reach the neediest populations of students, and provide opportunities for students who otherwise couldn’t afford them for tutoring, enrichment, and summer camp. Even better, statewide nonprofits could intentionally organize to fundraise from the areas of the state that have the most income and award scholarships in areas with the least resources – mitigating the inequities that would be likely if left to local nonprofits raising and gifting in wealthy areas and leaving poorer regions without scholarships.  

Regardless of federal regulations, this scenario could happen. But it would strongly depend on intentionality in the creation and promotion of SGOs that prioritize equitable opportunities for public school students.  

If federal regulations allow, the state could also add more guardrails: lower income thresholds for scholarship recipients; a prohibition on scholarships to entities that discriminate based on disability, sexual orientation, or religion; and a requirement that schools accepting scholarships release some kind of audit and report on program effectiveness.  

And more importantly, Illinois taxpayers still qualify for the tax credit regardless of whether Illinois participates. If Illinois doesn’t opt in, our neighbors who have already opted in (Indiana, Iowa, and Missouri) will market to Illinoisans to donate across the border, as will states across the country.  

The program obviously wasn’t created with the above scenario in mind—it was created for private school vouchers. Even in the best case scenario, unless federal regulations allow states to impose further guardrails, the majority of scholarships are likely to go to private schools. That could have some negative repercussions if lots of bright students leave their public schools, courted by private schools. (Some research on similar programs show a lot of scholarships go to students who are already there, in which case it seems the impact on the public school would not be some dramatic. So (slightly) lower-income private school families save some money they otherwise would have spent on tuition, while driving the federal deficit a little deeper.) 

If scholarships do indeed drain public schools of significant students, Evidence-Based Funding (EBF) will reflect the decreased enrollment, the school will be closer to its adequacy target, and its funding could be impacted. However, it’s highly unlikely the state will discontinue its promise of allocating $300 million to EBF, so the same amount of state funding should continue going to schools. Still, if students going to private schools are concentrated in particular districts, those schools could net a smaller increase from EBF tier money.  

At the macro-level, there’s no direct connection between the drain on federal resources through the tax credit and the federal education budget. But it wouldn’t be a surprising leap to see a justification for a budget decrease if the tax credit generates significant funds for scholarships. Whether or not Illinois participates, this scenario could happen – though if fewer states participate and fewer people are persuaded to take the credit, the total hole in federal tax receipts would be lower.  

My personal conclusion is that I’m not comfortable leaving the gray area until the federal regulations are unveiled. There are bills pending requiring Illinois to opt in and others requiring opt out. It doesn’t seem like the right time for any of them… yet. I think Governor Pritzker has the right idea: wait to see the fine print before we get in over our heads.