Category: Federal Tax Credit Scholarship

Time to Decide: The Federal Education Tax Credit Regulations Are Out!

Federal Tax Credit Scholarship | 10/2/2026
Post author Jessica Handy
Jessica Handy Executive Director

Time to Decide: The Federal Education Tax Credit Regulations Are Out!

For months, Democrat governors have been waiting for federal regulations before deciding whether to participate in the new federal education tax credit. We thought that was smart to wait for the fine print… which was supposed to come out in June… then we heard July… then September… And they were finally released yesterday!

We’re still reviewing them too and getting other experts’ input and we expect to have updates on this blog as we learn more. Nothing the regulations changes our perspective that Illinois should opt in ASAP and maximize the potential for public school students. Read our September policy brief here.

Dear Democrat Governors:

Opt in to fight back! This administration has systematically done all it could to kick our citizens off of Medicaid, our immigrant neighbors out of their homes, our families off food assistance, and our young learners out of preschool, while doubling down on record-setting ICE spending to terrorize our people in the streets.

When Illinois taxpayers are presented the option to give $1,700 to the failed Trump administration or divert it to public school kids in Illinois, the kids will win. But only if taxpayers know about it.

And you, Democrat Governors, have the power to make sure they know about it: make automatic payroll deductions easy for state employees and pensioners, ask your largest employers to do the same, partner with a state-wide scholarship organization that is aligned with state goals for equity and outcomes, and trumpet from the rooftops that this is a show of our frustration with this administration.

You don’t have to like the law to leverage the law to restore some resources to public school students.

For now, here’s a top-level summary of the program and our main takeaways so far:

Summary of the Program 

It is hard to overstate the potential of the federal education tax credit to funnel hundreds of millions – perhaps billions – of dollars to support public school students to access tutoring, enrichment, after-school programs, summer learning, and other supports. The range of potential funds varies so greatly because it all depends on how organized we can get; strong partnerships among schools, service providers, SGOs, families, and employers will generate exponentially more funds for students than one-off haphazard efforts.

All federal taxpayers can choose to divert $1,700 of their federal tax liability to a qualified “Scholarship Granting Organization” (SGO). This is a dollar-for-dollar tax credit. Governors cannot opt out their taxpayers from the federal education tax credit, but they can opt out their kids. All Republican-led states have opted in. Seven Democrat-Governed states will participate, either because they are opting in (CO and NY), their predecessor opted in (VA), or their Republican legislatures passed a law (KS, KY, and NC). If Illinois students are going to participate, Gov. Pritzker needs to opt in by December 31.

SGOs strike me as both extremely powerful operatives and fairly boring bureaucrats. On one hand, they are the lynchpin: taxpayers donate to an SGO of their choice and the SGO awards scholarships to students, according to the mission the SGO envisions. But on the other hand, they are middlepeople; they keep the books and manage the money, but they don’t provide any service themselves. SGOs “qualify” by meeting minimal federal requirements (like spending 90%+ of their resources on scholarships, being a non-profit, and awarding scholarships to 10+ students at 2+ schools from families earning less than 300% Area Median Income) and being added to a participating governor’s SGO list.

Summary of the Regulations 

  • States Cannot Set Stronger Rules for SGOs. The major question on many of our minds was whether states could impose stronger regulations on SGOs than the federal minimum guidelines, which are notably silent on discrimination and accountability. Consistent with the previews sent in June, states are pretty limited on what they can do here. (Though we did learn that states can remove an SGO mid-way through the year if it is not meeting requirements, so that’s not nothing.) On the whole though, this is unfortunate: we wanted states to be able to have stronger criteria, like lower income thresholds for students awarded scholarships, prohibitions against discrimination from service providers, and stronger accountability for student outcomes.
  • But SGOs Can Set Stronger Rules for Themselves. There was some question whether SGOs could restrict scholarships more narrowly than the federal law, and the regulations affirm they can. So, while the State cannot bar an SGO from its list because it grants private school scholarships, an SGOs can decide to only award scholarships to public school students.
  • Married Taxpayers Can Each Give $1,700. There have been widely varied estimates of how much the program could generate, in part because it was unclear whether married taxpayers could only give $1,700 jointly or if both could give $1,700. Both can. (So now the estimates will still be varied because it depends heavily on how many taxpayers will participate, but at least we have some clarity on one big variable.)
  • SGOs Have Some Flexibility During Start-Up. This is good news for public schools! Private school SGOs already exist, while public school SGOs are largely new. And for Democrat states that have waited so long to opt-in, this is even more important. SGOs can go on the Governor’s list even if they have applied as a non-profit, even if it hasn’t been licensed yet. The regulations are fairly stringent about SGOs having a primary purpose of granting scholarships; some non-profits that were thinking they could create a separate account for scholarships while continuing to serve a different primary purpose will need to create a separate 501(c)(3) – so that flexibility will be welcome. The law requires SGOs to spend 90% of revenue on scholarships, but a new SGO would have upfront costs before it even begins awarding scholarships. Regulations still require the 90% threshold to be met, but SGOs have until year two to meet it.
  • Allowable Uses… Some Still TBD. We know from the regulations that this is for K-12 students, and that an incoming K-12 student can access a summer program. We know it can’t be for new football jerseys because that’s not primarily academic. But there are a lot of unknowns in the area of allowable uses and forthcoming guidance will be released at some point. So there are gray areas – like piano lessons and debate club – that might work the first year, but be more clearly defined in the second.

What Else?

Let us know in the comments if you have other questions and we’ll track down the answers. If you’re curious for more information, check out our policy brief and October 5, 2026 webinar. If you are exploring starting or partnering with an SGO, we recommend this toolkit from the National Association of Education Foundations and American Association of School Administrators that gets way into the weeds.

Register for our webinar HERE!

If you haven’t signed our petition, click here. We’ll be watching for opt-ins (which at this point, might be more likely after the election November 3) and keep this updated as we dig deeper into the regulation.

LEARN MORE 

Time to Decide: The Federal Education Tax Credit Regulations Are Out!
Federal Tax Credit Scholarship

Time to Decide: The Federal Education Tax Credit Regulations Are Out!

Karina Oct 2, 2026 7 min read

For months, Democrat governors have been waiting for federal regulations before deciding whether to participate in the new federal education…

Flipping the Script: Making Scholarships Work for Public School Kids
Federal Tax Credit Scholarship

Flipping the Script: Making Scholarships Work for Public School Kids

Karina Sep 10, 2026
pig bank with graduation hat, pencils in a cup, and book in front of a school board.
Federal Tax Credit Scholarship

Federal Tax Credit Scholarship Working Group Values Statement

Karina Aug 10, 2026

Do you have any questions? Leave a comment below, and we will gladly provide more information!

Flipping the Script: Making Scholarships Work for Public School Kids

Federal Tax Credit Scholarship | 09/10/2026
Post author Jessica Handy
Jessica Handy Executive Director

Flipping the Script:
Making Scholarships Work for Public School Kids

Background 

In 2027, a federal tax credit will take effect, allowing taxpayers across the U.S., including Illinois, to claim a tax credit of up to $1,700 for donating to student funding. IL taxpayers could have the potential to redirect up to $6 billion of their federal taxes from the IRS to student funding. But Illinois students will only be able to access those resources if the state “opts in” to the program. The decision to participate rests with Governor Pritzker.

Sign our petition 

Policy Brief 

The Stand for Children’s work group created a recommendations report to highlight the key players (policy makers, school leaders, SGOs, etc.) capable of ensuring public school students who need it the most benefit from this program.

Flipping the Script Policy BriefDownload

Next Steps 

The Federal Tax Credit Scholarship Program will only benefit public school students if we all work together to make sure these funds reach them. We are looking for more community advocates, school leaders, and organizations who would like to join our work. Sign our petition above and share it with your networks! Don’t forget to tag us if you post on social media.

LEARN MORE 

Time to Decide: The Federal Education Tax Credit Regulations Are Out!
Federal Tax Credit Scholarship

Time to Decide: The Federal Education Tax Credit Regulations Are Out!

Karina Oct 2, 2026 7 min read

For months, Democrat governors have been waiting for federal regulations before deciding whether to participate in the new federal education…

Flipping the Script: Making Scholarships Work for Public School Kids
Federal Tax Credit Scholarship

Flipping the Script: Making Scholarships Work for Public School Kids

Karina Sep 10, 2026
pig bank with graduation hat, pencils in a cup, and book in front of a school board.
Federal Tax Credit Scholarship

Federal Tax Credit Scholarship Working Group Values Statement

Karina Aug 10, 2026

Do you have any questions? Leave a comment below, and we will gladly provide more information!

Federal Tax Credit Scholarship Working Group Values Statement

Federal Tax Credit Scholarship | 08/10/2026
Post author Jessica Handy
Jessica Handy Executive Director
pig bank with graduation hat, pencils in a cup, and book in front of a school board.

Federal Tax Credit Scholarships Working Group Values Statement

The #1 question guiding our discussion: How can Illinois maximize the new scholarship opportunity equitably for the benefit of public school students?

Background 

In 2027, a federal tax credit will take effect allowing taxpayers across the United States, including in Illinois, to claim a credit of up to $1,700 for donating to qualified Scholarship Granting Organizations (SGOs). SGOs can award scholarships to cover a wide variety of expenses, from student enrollment in public school services to private school tuition. Final Department of Treasury regulations are anticipated in September. A preview of guidance was released in June. If every eligible Illinois taxpayer contributed, the program would generate about $6 billion.

About the Working Group 

After Stand for Children’s June 10 townhall, we convened a coalition of public education advocates to rapidly examine how Illinois might take the controversial federal education tax credit and turn it into funding to support evidence-based programs for students in need. Given that 90% of students attend public schools, statewide education advocates have a responsibility to try to design creative, innovative, values-based approaches to turn these funds into positive educational outcomes.

The question before us is not whether to create the program—it already exists. The question before us is whether Illinois students should be able to access scholarship funds. There are high-impact tutoring organizations, disability service providers, vocational training programs, and after-school and summer programs ready to use the funds to impact Illinois children. Illinois taxpayers can contribute to SGOs and take the dollar-for-dollar tax credit regardless of whether Illinois opts in; however, opting in is the only way scholarship funds become available to Illinois students.

Our Guiding Values 

We believe:

  • Illinois taxpayers will invest significantly in new tax credits, whether or not Governor Pritzker opts in, and Illinois students should be able to access those resources. At the same time, the design of the federal program was not centered around equity, and Illinois has an opportunity and a responsibility to elevate equity through intentionality.
  • Public school students, particularly those with the most needs in the most under-resourced schools, deserve equitable access to resources.
  • Scholarship Granting Organizations (SGOs) that accept funding in exchange for tax credits and scholarship-accepting organizations must be held to high standards of ethics so maximal funds reach students through high-quality, evidence-based programing with no waste, fraud, or abuse.
  • SGOs already exist for private school tuition scholarships, but there is minimal infrastructure to support public-school-centric SGOs; the longer we wait to decide whether to opt in, the harder it will be to stand up new SGOs.
  • Illinois students – not politics – should be at the heart of this conversation.

Our Next Steps 

We anticipate developing recommendations for Illinois’ response to the federal tax credit scholarship program by early September. Ideally, federal regulations will be available by then; however, we are cognizant that the more we delay a decision, the further behind the curve public school-supporting SGOs will be in getting up and running.

Federal Tax Credit Scholarship Program: Should Illinois opt in or opt out? Here is what the critics say

Federal Tax Credit Scholarship | 06/22/2026
Post author Karina Donayre
Karina Donayre Marketing & Communications Manager
IL state capitol building with a blue sky background.

Federal Tax Credit Scholarship Program: Should Illinois opt in or opt out? Here is what the critics say

The debate on whether Illinois should opt in or out of the Federal Tax Credit Scholarship Program has been growing in the last few months. Our previous blog, Confused About… the Federal Tax Credit Scholarship Program? outlined the basics of the program and walked through both the case for opting in and opting out. After a review of the facts, our conclusion was to hold out on judgment as we await further guidance from the federal government and continue to learn from stakeholders on both sides of the debate. To help Illinois’ families better understand the impact of the tax scholarship program and the positions of proponents and opponents, we hosted a Virtual Townhall on June 10th.

The Townhall centered on two perspectives: Dr. Joshua Stafford, superintendent at Vienna High School, spoke on the merits of opting into the Federal Tax Scholarship Program (FTSP); while Ann Courter, Executive Director of the League of Women Voters made the case for opting out.

Who Benefits? 

At its core, the Federal Tax Scholarship Program will provide taxpayers with 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. The SGOs are non-profit organizations that spend at least 90% of funds on scholarships, grant scholarships to more than one school, and verify that the receiving family’s income is less than 300% of the area median income. Very little ink has been spilled by the Federal government detailing what kind of scholarships would qualify.

The primary concern outlined by Ann Courter for opting in to the FTSP was that it would shift taxpayer money away from public schools and into private schools. “Public money would be going for private, mostly religious, schools, and that undermines transparency, accountability, high standards, protection of our students’ civil rights… and it undermines our stability,” said Courter. She argued that the lack of transparency and accountability leaves room for discrimination which could mean only students from wealthy neighborhoods and families would benefit.

Stafford argued the program’s flexibility allows public schools to capitalize on the program—unlike other voucher programs. “You can give to the SGO that will be using its funds for public school students.” It’s our money at the end of the day, so supporters encourage taxpayers to choose the SGO that will have the best impact on low-income students. He outlined the many ways public schools could put the scholarship dollars to work: academic tutoring, books, sports uniforms, transportation, technology, internet access, extended day programs, disability services, and more.

For areas with a high percentage of low-income students, like Vienna, “…these allowable expenses are all things that students in my community could benefit from” stated Stafford.  

Dollars and Sense 

“If Illinois opts in, you [taxpayers] will be able to give your $1,700 to an SGO of your choosing that benefits kids in Illinois. If Illinois doesn’t opt in, you will still be able to take that $1,700 credit, but it will have to go outside of our state,” said Stafford. As a federal law, all taxpayers will have the option to partake in this program, even if it means funding SGO programs in other nearby states that have opted in, like Indiana and Missouri. For this reason, supporters like Stafford believe “Illinois dollars should stay in Illinois and be invested in Illinois kids.”

Opponents argue that access to federal scholarships could siphon students out of public schools, which would negatively impact school funding. “Our schools are funded on a per-pupil basis, and when kids leave a classroom, that will cut back on the state’s money coming into the district,” said Courter when sharing her concerns with possible funding impacts on public education.

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.

Accountability & Transparency 

Governors from states that opt in will provide a list of approved SGOs to receive taxpayers $1700. This gives governors a lot of say over how the scholarship dollars will flow through their state. However, as we said in the original FTSP blog, the main question isn’t who or what can be funded but rather who or what can be blocked from funding. We are still waiting for final guidance from the federal Department of the Treasury to know if Governors will be required to allow all qualifying SGOs to be on their state-approved list. While the program was designed to be used for private school scholarships, advocates argue the flexibility granted to governors could produce a more equity-minded SGO list that centers on opportunity for public schools. A way of turning lemons into lemonade, so to speak.

Proponents, on the other hand, worry that upcoming federal guidance could limit governors’ decision-making power, resulting in fewer opportunities to design programs friendly to public schools and creating an environment that allows very little oversight on how dollars flow from SGOs to students.

“SGOs will have no standards for their operations. They will have very little oversight,” said Courter “Under Invest in Kids, there was a lot of private money that went to religious schools that discriminate, and it’s highly likely that this experience will be repeated.”

Stafford countered that public schools serve all Illinois students, and SGOs directly linked to Illinois public schools would be the simplest way to ensure the tax scholarship dollars are spent equitably.

Now that we are halfway through 2026, we cannot ignore the fact that public schools that want to receive funding need to begin planning now, if they want to get the most benefits out of this program. Meanwhile, National organizations, like the American Federation for Children, are ready to solicit Illinois taxpayers and make the process for donating much easier. Illinois public schools should prepare now to best position themselves to receive FTSP dollars.  

Our Conclusion on FTSP 

We still think Illinois should wait and see the fine print before opting in or out of the FTSP. In the meantime, we’re continuing to meet with both proponents and opponents to gather information and plan for whatever lies ahead. Want to join the conversation? Let us know what you think!

Take our poll!

Confused About… the Federal Tax Credit Scholarship Program? 

Federal Tax Credit Scholarship | 03/4/2026
Post author Jessica Handy
Jessica Handy Executive Director

Confused About… the Federal Tax Credit Scholarship Program? 

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. 

What’s the Federal Tax Credit Scholarship Program? 

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).  

What Types of Scholarships Can Be Funded? 

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.  

What’s the Case for Opting In? 

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.  

What’s the Case for Opting Out? 

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.  

So where does this leave us? 

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.  

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