For over a decade, the push for educational freedom was spearheaded at the state level by advocates and policy makers. The landscape of the school choice movement will change significantly in January 2027, when the first federal tax credit scholarship goes into effect.
That tax credit was a provision within the FY2025 reconciliation process, also known as the One Big Beautiful Bill Act, signed into law this summer. It will allow individuals to make cash contributions of up to $1,700, and potentially $3,400 for married couples, to qualified nonprofit scholarship-granting organizations (known as Student Scholarship Organizations, or SSOs, in Georgia). Donors receive a dollar-for-dollar tax credit.
SSOs will use these contributions to grant scholarships to students for use on qualified expenses. Students in families with income below 300% of their area median income are eligible, and funds can be used on a broad variety of K-12 expenses such as tuition, fees, supplies, transportation, special needs services and other expenses tied to enrollment at public, private and religious schools.
This obviously marks a significant expansion of educational freedom. While states are required to opt into the program, meaning families in some states that do not have robust school choice programs will likely be unable to benefit, there is still plenty of opportunity for improved access to quality education.
There are key differences between the federal credit and Georgia’s state level credit: the Qualified Education Expense Tax Credit. For one, the federal program excludes businesses and corporations; only individuals can donate. Georgia’s donation limit is also higher, allowing $2,500 donations for single filers up to a range of varying business caps. Despite higher donation caps, Georgia’s program-wide cap is set at $120 million, meaning only about 26,000 students (1% of Georgia’s K-12 population) can participate.
There is no aggregate cap for the federal tax credit, but the $1,700-per-donor limit means that participation will be crucial to the program’s utility, in contrast to other tax credits that could rely on fewer, larger donations from wealthy donors.
If Georgia opts into the federal tax credit, Georgia families could see expanded scholarship resources with the state and federal programs operating simultaneously, as more donor dollars flow into scholarship-granting organizations. Georgia taxpayers could also theoretically use both state and federal credits depending on their eligibility.
While we’re still a year away from the launching of the federal tax credit, its potential to expand access to education is an exciting prospect for Georgia. Georgia’s existing program is popular and tends to fill its cap quickly, so the federal program could help relieve pressure or offer an alternative pathway when the state cap is reached.
Ensuring the program works could be a complicated endeavor, and as a recent report from the American Enterprise Institute (AEI) notes, the following year before launch will be crucial in determining its success.
For starters, providing clear rules and guardrails is an essential – and presently unclear – task for the Department of the Treasury. AEI points out that the reconciliation bill’s issuance that the Treasury “shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this section” is vague, and that most states have not chosen to opt into or out of the tax credit because they are awaiting clarification on rules.
So how can rulemaking ensure success and avoid pitfalls?
AEI’s report outlines three guiding principles: protecting private schools from deregulation, clarifying definitions and streamlining the process.
The program’s most serious vulnerability could be the risk of federal or state officials using participation requirements to impose new regulations on non-public schools. Because schools may come to rely on federally subsidized scholarship funds, future administrations could pressure them to conform to political or bureaucratic standards, just as higher education institutions have been influenced through federal loan and grant conditions.
AEI notes that involving governors in the approval process for scholarship organizations adds another point where partisan control could become influential, unless the approval process is tightly limited to basic legal compliance. Without strong, explicit protections, scholarship organizations could become partisan leverage points and private schools could face threats to their independence that school choice programs seek to preserve.
Another implementation risk is ambiguity, as key terms such as “school,” “student” and even “contribution” are not straightforward. AEI recommends further clarification on whether unaccredited and otherwise nontraditional schools will qualify, as well as which educational expenses will be permitted.
A final challenge is making participation as easy as possible. Regulations should clarify that each taxpayer may contribute up to $1,700, and permit both spouses in a joint filing to donate. Auto-pay options through employers would make giving nearly effortless. The Treasury should also refine the requirement that scholarship organizations spend at least 90% of their income on scholarships so that the rule applies only to funds received through the federal program, and not to an organization’s entire revenue stream.
The launch of a federal tax credit scholarship program is significant, but whether it truly represents a transformative win for educational freedom is yet to be determined. The program is set to start regardless, but its success will hinge on whether the rulemaking process preserves school autonomy, minimizes administrative friction and keeps families at the center of the effort.