The Consortium SGO: One Scholarship Organization Across Schools That Compete

The Education Freedom Tax Credit (Section 25F) rewards scale, and it does so structurally rather than as a matter of efficiency. An SGO must award scholarships to ten or more students who do not all attend the same school. Its award committee must sit at arm's length from any one school community. Its applicant pool has to be diverse enough that awards do not concentrate at a single campus by default.

For a single school, each of those is an architectural problem. For a network, none of them are. That is why a diocese clears the structural rules almost by existing.

But a diocese has something an association of independent schools does not: a hierarchy. When a hard question arrives — who governs, how awards are distributed, who pays for the machine — a diocesan structure has an authority that can settle it. An association of independent Christian schools, a classical school network, a state association of private schools, or an ad hoc group of heads who trust each other has no such authority. Its members are peers who recruit from the same families.

Everything difficult about a consortium SGO follows from that one fact. Here are the five decisions, in the order they arrive.

Decision 1: Who Holds the Entity

The reflex is to run the scholarship program inside the association itself. In nearly every case, that is wrong.

The 90% rule requires an SGO to devote at least 90% of its income to scholarships. The previewed safe harbor that makes this workable measures the test against the program's segregated account rather than the organization's whole budget — but that safe harbor is available only to organizations whose activities are largely scholarship-granting. An association with membership dues, an annual conference, accreditation services, professional development, and a job board is not that. Under the general rule, the test would run against total receipts, and the association would fail it structurally.

So: a new 501(c)(3), not a private foundation, whose overwhelming activity is granting scholarships, affiliated with the association the way a related foundation typically is. The association can seat the board. The association cannot be the SGO.

The affiliate structure buys a second thing that matters every single year. The association can fund the SGO's operations — staff, software, launch costs — with ordinary charitable support that never enters the scholarship accounts and therefore never competes for room inside the 10% administrative allowance. Dues fund the machine; contributions fund students. Consortiums that skip this step spend year two trying to run an administration out of a 10% cap that was never sized for it.

One caution on entity design: keep the SGO's activity genuinely singular. A scholarship affiliate that also runs the association's conference registration, or administers an unrelated grant program, walks itself back into the same question it was formed to avoid.

Decision 2: The Board Cannot Be a Delegate Assembly

This is the decision that most often breaks a consortium, and it breaks quietly, eighteen months in.

The intuitive design is one board seat per member school. It feels fair, it is easy to sell at the organizing meeting, and it produces two predictable failures. A twenty-school consortium gets a twenty-person board, which is a body that cannot decide anything. And every member arrives understanding their job as representing their school's interests — which is precisely the posture the arm's-length requirement exists to prevent.

The workable design inverts it:

• A small board with an independent majority. Members with standing in the community — a CPA, an attorney, a retired administrator, a donor with no child enrolled at a member school — who owe a duty to the SGO rather than to a campus.
• A minority of seats for member-school leadership, rotating on staggered terms rather than permanently allocated to the largest or founding schools.
• A heads' advisory council with no vote. School heads have essential operational knowledge — enrollment calendars, financial aid cycles, what families actually need — and giving them a formal advisory channel is how you get that input without seating twenty fiduciaries with divided loyalties.
• A written conflict policy that names the obvious conflicts, because in this structure they are structural rather than occasional.

Set the term lengths and the appointment mechanism in the bylaws at formation. A consortium that begins with one-seat-per-school and tries to restructure after the money arrives is negotiating governance with people who now have something to lose.

Decision 3: Allocation — The Conversation to Have Before the Money Arrives

Here is the question every member school will ask, usually in the second meeting, sometimes in the first: our families are going to give — do our students get that money back?

The answer is no, and it has to be said in those words, early, in writing.

A donor cannot earmark a contribution to a particular school. An SGO cannot allocate awards back to schools in proportion to what each school's community gave — that is earmarking by structure rather than by request, and it is prohibited just as firmly. It is not a drafting problem to be engineered around; it is the design of the program.

What replaces proportional return is a published process, and the strength of a consortium is that it can make the process genuinely credible:

• Published eligibility and award criteria, adopted by the board before any application opens.
• The statutory priority order, applied systematically rather than as a tiebreaker: continuing recipients first, then their siblings.
• A blind first-pass review in which applications are scored without the applicant's name or school, with identities revealed only for conflict screening. This is the single most useful structural safeguard available to a consortium, because it converts "trust us" into a procedure. It is also strong audit evidence.
• Distribution reported openly to member schools every cycle — awards by school, by grade band, by award size — so that nobody has to guess.

Now hold the honest conversation about what that reporting will show. In any given year, a school whose community raised 40% of the pool may receive 22% of the awards, because awards follow income-eligible applicants and the priority rules, not fundraising. If that outcome will end the consortium, the consortium should not form. Say it at the organizing meeting, put it in the memorandum of understanding, and have every head initial the paragraph.

Two things reliably defuse it in practice. First, the arithmetic is not zero-sum in the way it feels: the credit is uncapped and participation-scaled, so a consortium that raises more does not divide a fixed pool differently, it enlarges it for everyone. Second, over multiple cycles the distribution tends to track each school's share of income-eligible enrollment — which is the fair measure, and a measure member schools can see in advance.

Decision 4: One Committee, Real Independence

The award committee is where a consortium's peer structure creates its sharpest compliance risk, because the people who best understand the applicant families are the people with the most direct interest in where awards land.

The rules that make this work:

• No school head or employee votes on their own school's applicants. In practice, the cleanest version is that school personnel do not sit on the deciding committee at all — they support intake and verification, which is ministerial work, and the deciding is done by people without a campus.
• Screening and deciding are separate functions. Verifying that a household is at or below 300% of area median income is administrative. Ranking a pool is not. Keep the staff on the first and the committee on the second.
• Disqualified persons run at least organization-wide. A committee member's immediate family is expected to be disqualified from receiving scholarships from the SGO — which in a consortium means from any member school, not just the member's own. That is a heavier ask than it sounds, and whether it is entity-wide or narrower is one of the open questions. Recruit on the assumption that it is entity-wide, and tell candidates before they accept.
• Minutes that record the process, not just the outcome: criteria applied, recusals taken, how ties were resolved.

Decision 5: Who Pays for the Machine

The administrative allowance is a withdrawal cap — up to 10% of what comes into each state account may be released to cover administration. It is a ceiling, not a budget, and for a consortium in its first year it will not be enough, because costs are front-loaded and contributions arrive late.

The three sources, in order of preference:

• Association support or member assessments paid to the SGO as ordinary operating gifts, outside the scholarship accounts. This is the cleanest structure and the reason the affiliate model exists.
• Dedicated operating gifts from donors who understand they are funding the organization rather than a scholarship, and who receive an ordinary charitable receipt rather than a credit-eligible one. Keep these strictly separate from credit-eligible contributions at the point of solicitation, not just in the ledger.
• The 10% allowance, treated as the last resort rather than the operating plan.

A note on assessments: size them by something stable and observable — enrollment, or a flat per-school fee — rather than by fundraising performance. An assessment that scales with what a school's donors gave recreates the proportional-return expectation you spent Decision 3 dismantling.

The Memorandum of Understanding

Member schools should sign something, and it should be short enough that heads actually read it. What belongs in it:

• What the SGO does and does not promise. Explicitly: no guaranteed awards, no proportional return, no school-designated gifts.
• What each school commits to — promoting the program to its families, confirming enrollment for recipients, and supplying the documentation disbursement requires.
• What the SGO commits to — published criteria, per-cycle distribution reporting, and a defined calendar that fits the tuition year.
• The cost-sharing formula, and how it changes.
• Governance — how seats are filled, terms, and how the MOU is amended.
• Exit. What happens when a school leaves: its families remain eligible on the same terms as any other applicant, no funds are refunded or transferred, and departure does not alter awards already made. Write this while everyone is friendly.

What cannot go in it: any provision that guarantees a school awards, any provision that ties awards to fundraising, and any promise to prefer a member school's applicants. A consortium that puts those in writing has documented its own violation.

Why a Consortium Beats Everyone Forming Their Own

Member schools will ask why they should not each stand up an SGO. The answer is arithmetic.

The annual independent audit — financial and programmatic — is entity-level. Ten schools with ten SGOs pay for ten audits, ten boards, ten sets of books, ten receipting systems, and ten conflict processes. One consortium pays for one of each. Those are exactly the fixed costs the 10% allowance struggles to cover, and they do not shrink for a smaller organization — a 10% allowance on $2 million funds a real team; on $200,000 it does not fund one full-time person.

And most single schools cannot clear the structural rules alone anyway. The ten-students-more-than-one-school requirement, an applicant pool that does not concentrate at one campus, a committee genuinely at arm's length from the school community — a consortium satisfies all three by construction.

The Sequence for This Fall

Formation runs nine to fifteen months when it goes well, and the first covered year begins January 1, 2027. Working backward:

• Convene the members and settle Decisions 1 through 3 first. Entity, board, and the allocation conversation. Do not proceed to filings until every head has heard the no-proportional-return paragraph out loud.
• Incorporate the affiliate, adopt bylaws, the conflict-of-interest policy, and the written no-earmarking policy.
• File for IRS recognition. This is the long pole and it does not compress.
• Register for charitable solicitation in each state you will fundraise in.
• Confirm your state's participation status on the tracker, and if your state has not elected, read the holdout-state posture — the formation work is identical and the timeline is the argument for starting anyway.
• Build the operating calendar against the member schools' tuition years, not the SGO's convenience. Disbursement timing is what families actually experience.

If your group is still deciding whether a shared SGO is the right structure at all, start with the form-or-join question — for some associations the honest answer is that member schools should join an SGO that already operates, and revisit forming one when the volume justifies it. ClearPath Launch covers the formation sequence; ClearPath Managed covers the case where the consortium should own the SGO but not staff it.

A note on currency. This reflects statutory requirements and guidance available as of August 2026, including the June 9, 2026 preview. Rules described as previewed are not final — verify with counsel before adopting governing documents.