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.

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.

• 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.

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.

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.

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