Does Taking Education Freedom Tax Credit Money Put Your School Under Federal Regulation?

Every board of a Christian, classical, or independent school that looks at the federal scholarship tax credit reaches the same question before it reaches any other, and it is almost never the question about compliance mechanics. It is this: if our families pay tuition with this money, does the federal government now get a say in how we run our school?

The answers circulating are unhelpfully polarized. One camp says the money is private, so there are no strings, full stop. The other says every dollar with a federal fingerprint eventually brings federal control, so stay out. Neither is an analysis.

Here is the analysis. It is not legal advice, and the concluding section of this post is a list of things to take to your own counsel — but a board deserves to understand the structure before it hires anyone to opine on it.

Start By Following the Money

The instinct behind the question is that federal money brings federal rules. That instinct is sound. So the first thing to establish is whether any federal money touches your school at all, and the answer turns on the actual path a dollar takes.

Under the Education Freedom Tax Credit (Section 25F), the path is:

1. An individual taxpayer makes a cash contribution to a scholarship granting organization — a private 501(c)(3).

2. The taxpayer claims a nonrefundable federal tax credit of up to $1,700 against their own federal income tax liability. The credit belongs to the individual, not to the SGO and not to any school.

3. The SGO awards a scholarship to an income-eligible student through an arm's-length process it controls.

4. The family applies that scholarship to qualified elementary and secondary education expenses — tuition among them, but also books, tutoring, technology, and special-needs services.

5. Your school receives tuition from a family.

Notice what never happens. No federal agency appropriates funds. No money passes through the Treasury on its way to a school. No school signs an agreement with the federal government, applies to a federal program, or is party to any federal instrument. The school is the fifth party in a chain, and its relationship is with the family — the same relationship it has with every other tuition-paying family.

That structure is the whole basis of the reassuring answer, and it is a real basis. It is not, however, the end of the inquiry.

What the Enacted Statute Actually Conditions

This is the part worth being precise about, because the standalone bill and the enacted law are not the same document, and a fair amount of the reassurance circulating in school-choice circles is quoting the wrong one.

The Educational Choice for Children Act as introduced in the 119th Congress contained language addressed to religious liberty and to the autonomy of scholarship granting organizations and participating schools. What was enacted through the reconciliation law is Section 25F of the Internal Revenue Code, and its subsections are: allowance of credit, limitations, definitions, requirements for scholarship granting organizations, denial of double benefit, carryforward of unused credit, state list of scholarship granting organizations, and regulations and guidance.

Two observations follow, and boards should hold both.

The reassuring one: every substantive requirement in the section runs to the SGO, not to schools. The statutory obligations are the ones our readers already know — awards to ten or more students who do not all attend the same school, at least 90% of income to scholarships, household income at or below 300% of area median, the qualified-expense limits drawn from the Coverdell rules, the priority for continuing students and their siblings, no earmarking, and the self-dealing prohibition. The statute does not impose accreditation requirements, curriculum requirements, hiring requirements, admissions requirements, testing requirements, or reporting requirements on the schools students attend. It does not regulate schools because it does not address schools; it addresses the organizations that grant scholarships.

The sobering one: the enacted section does not carry an express autonomy or no-federal-control clause. The protective language some advocates cite lives in the standalone bill, not in the codified section. A board being told "the law explicitly protects our autonomy" should ask which law, and should be shown the subsection. The honest statement is narrower and still favorable: the enacted statute imposes nothing on schools — not because it promises not to, but because it never reaches them.

Do not skip this distinction on the way to the comfortable conclusion. It is the difference between a protection and an absence, and they behave differently if Congress later legislates.

The Precedent That Should Give You Pause

The fear underneath this question usually has a specific case behind it, whether or not the person raising it can name it.

In Grove City College v. Bell (1984), the Supreme Court held that a college which accepted no direct federal funds nevertheless became a recipient of federal financial assistance because its students received federal grants — which triggered Title IX obligations. The Court limited coverage to the program receiving the aid, and then Congress overrode that limitation in the Civil Rights Restoration Act of 1987, extending coverage institution-wide.

That is the sequence every religious school administrator has heard about, and it is why "the money goes to families, not to us" does not by itself end the conversation. Indirect aid has created recipient status before.

The distinction between that case and this program is real, and it rests on what the money is:

• In Grove City, students received federal grants — appropriated funds disbursed by the government through a federal program.
• Under the Education Freedom Tax Credit, a private individual makes a charitable contribution to a private organization and receives a credit against tax owed. No appropriated funds exist at any point.

The Supreme Court has drawn precisely this line in the scholarship tax credit context. In Arizona Christian School Tuition Organization v. Winn (2011), the Court held that taxpayers lacked standing to challenge Arizona's scholarship tax credit, reasoning that contributions producing a credit are not government expenditures — like contributions that lead to charitable deductions, they are not funds owed to the State. And in Zelman v. Simmons-Harris (2002), the Court upheld a voucher program on the ground that aid reaching religious schools through the genuine private choice of individual families is not government aid to religion. The more recent line of cases — Espinoza (2020) and Carson (2022) — pushes further still, holding that states may not exclude religious schools from generally available benefit programs.

But be honest about what those cases are. Winn is a standing decision, not a holding that credit-funded scholarships are private money for every federal statutory purpose. Zelman is an Establishment Clause case, not a Title IX case. No court has ruled on whether Education Freedom Tax Credit scholarship dollars make a receiving school a recipient of federal financial assistance, because the program does not begin until January 1, 2027.

The defensible summary for a board minute: the structure of this program is materially further from Grove City than a voucher or a federal grant is, the money is private under the Court's own reasoning about tax credits, and the enacted statute reaches only SGOs — but this is an untested question, and anyone telling you it is settled is telling you something they cannot know.

The Four Places Real Exposure Actually Sits

If you are going to worry, worry accurately. In descending order of how likely each is to affect your school:

1. Documentation, not regulation — and it is certain. Your school will be asked for things it may not currently produce: enrollment confirmation for scholarship recipients, itemization of what tuition and fees cover, and cooperation with disbursement mechanics that operate on the SGO's calendar rather than yours. If the SGO disburses directly to the school, you will be reconciling against a third party's records. This is administrative work landing on a business office, not federal control — but it is the part every school actually experiences, and it is worth staffing before it arrives rather than after.

2. State-level conditions — the real regulatory risk. This is where boards under-worry. The Education Freedom Tax Credit requires each participating state to publish a certified list of the SGOs located in it, and the states control that gate. The June 2026 preview indicated that states may not layer SGO-specific requirements on top of the federal ones beyond generally applicable charitable-organization rules — previewed, not final, and one of the questions the September regulations bear on. Even so, the state your SGO is listed in matters more to your autonomy than the federal statute does, and it will keep mattering because state law changes on a two-year cycle. Read your state's SGO provisions before you read anything else.

3. Future Congresses. A credit is not a contract. A later Congress can amend the credit, and the absence of an express autonomy clause in the enacted text means there is no statutory promise to point at if it does. This is a genuine risk and it is also unmanageable — every program a school participates in carries it, including state programs your school may already accept. The mitigation is not abstention; it is not building a budget that cannot survive the program's removal.

4. The SGO's own obligations, if the SGO is yours. Here is the point most often missed in this conversation. The entity that carries the federal compliance burden is the scholarship granting organization. If your school or association forms its own SGO, you have not avoided federal obligations — you have volunteered for all of them: the 90/10 discipline, income verification, the arm's-length award committee, the annual independent financial and programmatic audit, the unique donor number and receipting chain, and per-state segregated accounting if you operate in more than one state. If your school instead joins an SGO someone else runs, the federal surface stays with them and your school's obligation is confirming enrollment.

That is the trade every board should see plainly: the federal requirements attach to whoever holds the SGO. "Does this regulate our school?" and "should we be the SGO?" are separate questions, and the second one is the one that determines your compliance exposure.

What Does Not Change

For completeness, because these come up in the same meeting:

• Your religious character. The statute contains no curriculum, hiring, or doctrinal conditions on schools, and Coverdell-derived qualified expenses cover education at religious schools without carving out faith-integrated instruction. The genuinely unsettled edge is how faith-integrated programming maps to the qualified expense categories — an SGO-side analysis question we treat in the faith-community compliance post, not a school-autonomy question.
• Your admissions. The SGO decides who receives a scholarship. Your school decides who it admits. Those are different decisions made by different entities, and the statute does not merge them.
• Your tuition-setting. Nothing in the program conditions the credit on tuition levels or requires a school to discount, cap, or publish pricing.

Take These Five Questions to Counsel

A board that wants a written opinion rather than a blog post should ask for these specifically:

1. Does our receipt of tuition paid from an Education Freedom Tax Credit scholarship make our school a recipient of federal financial assistance under Title VI, Title IX, Section 504, or the Age Discrimination Act — and does our answer change if the SGO disburses directly to the school rather than to the family?

2. Does our state's SGO listing statute, or its charitable-organization rules, impose anything on participating schools — now, or by delegation to an agency?

3. If our school, association, or church forms the SGO, what obligations attach to that entity, and can they be structurally separated from the school?

4. How should our enrollment agreements and financial aid policies change to account for third-party scholarship funds with federal expense limitations?

5. What is our exit posture if the statute is amended — what would we have to unwind, and on what notice?

Get the answers in writing, dated, before your first scholarship recipient enrolls. The value of that memo is not that it eliminates uncertainty. It is that it documents a considered, good-faith position taken in advance — which is the same standard that governs every other decision in this program.

The Bottom Line for a Board Vote

The enacted statute regulates scholarship granting organizations and does not reach the schools that scholarship recipients attend. The money is private under the Supreme Court's own reasoning about tax credits, and the program is structurally further from federal grant aid than any voucher program that has been litigated. There is no express autonomy clause in the codified section, no court has tested the question, and the state your SGO lists in will matter more to your school's autonomy than Washington will.

If your board's real question is how to participate while keeping the compliance surface off your school, the answer is not to stay out of the program. It is to be deliberate about whether the SGO should be yours — and for many schools, particularly single-campus schools, the answer to that is no for reasons that have nothing to do with federal strings.

For Christian schools and churches, our dedicated formation guide covers the structural decisions in order. For all faith traditions, see the faith-based SGO overview.

A note on currency. This reflects the enacted text of Section 25F and guidance available as of August 2026, including the June 9, 2026 preview. The program begins January 1, 2027 and no court has interpreted it — treat every conclusion here as a framework for a conversation with counsel rather than a substitute for one.