A new federal program is set to change the school funding landscape starting in 2027, bringing new considerations for public school districts and their education foundations. From potential implications for district operations to opportunities for participation, school communicators could have an important role in helping leadership navigate what's ahead. While some program rules are still being finalized, here's what we know as of October 2026.  As of this writing, 31 states have opted into this program; the opt-in deadline is January 1, 2027.

What is It?

The Federal Scholarship Tax Credit program (FSTC) – also called the Education Freedom Tax Credit or Section 25F – was signed into law on July 4, 2025, as part of the federal budget reconciliation package known as the “One Big Beautiful Bill Act.” Rather than sending money directly to families or schools, the program works through the federal tax code. Individuals who donate to approved nonprofit “Scholarship Granting Organizations” (SGOs) can claim a nonrefundable federal tax credit of up to $1,700 per year for single filers, dollar for dollar, and up to $3,400 for couples filing jointly if each donates. The individual states approve the SGOs and make that list publicly available.

The SGOs then use those donations to award K-12 scholarships to eligible students in states that have opted into the program, covering eligible expenses at private or public schools. Eligible students are generally those whose family income is up to 300% of the gross median income in the area where they live.

How is This Different From a Voucher?

Unlike a traditional voucher, this program isn’t funded by direct government appropriation. This program also:

• Relies on voluntary private donations that generate a tax credit;
• Is administered by nonprofits rather than states;
• Requires each state to opt in before a family may benefit; and
• Has no fixed spending cap.

Could it Help Public School Students?

Yes. The way the law is written, the FSTC is for eligible expenses at public schools, as well as private schools. While the final definition of “eligible expense” has yet to be set, it could cover things like tutoring, special education services, technology, or textbooks. Others have said expenses could include anything not mandated by the state. As written, the definition of qualified expense is based on the expenses covered by Coverdell Education Savings Accounts.  Private school students can use the scholarships for the same things as public school students, as well as for tuition.

Where Things Stand

To participate, states must opt in by January 1, 2027. So far, 31 states have said yes. The U.S. Department of the Treasury released the interim rules on October 1, 2026, and is now accepting comments through December 1. These rules pertain to the operation of SGOs. The Treasury Department will hold a public hearing on December 15 in Washington, D.C. The Treasury Department has stated that the official definition of “qualified expense” is forthcoming and is of “high importance.”

If a state does not participate in 2027, it can elect to opt in for 2028.

Suggested Next Steps

With the program starting in less than three months, school districts should consider the following:

• Confirm whether your state has opted in, and if not, whether a decision is pending;
• If the state has opted in, discuss with community stakeholders to see if this program would benefit district students and identify fees that could be covered;
• Identify SGOs that may offer scholarships to eligible students in your district. School districts and school-affiliated foundations can form SGOs;
• Create a communications plan to let parents know which SGOs are available and which public school-eligible expenses they will cover.

The FSTC has drawn both support and opposition from various groups and across the political spectrum. While the final rules are still being worked out, the program is on track to start at the beginning of the year. Communications professionals could be called on to educate students and community members; therefore, it is important to understand the impact these scholarships could have on your school district. 

---

What School Communicators Need to Know

As districts assess how the federal scholarship tax credit could affect their schools and explore possible avenues for involvement, school communicators will be important partners in understanding the evolving landscape and informing district decision-making.

Explore NSPRA's Federal Scholarship Tax Credit Resource Hub for a comprehensive collection of webinars, articles, federal guidance, toolkits and other resources developed or curated with school communicators in mind.

Federal Scholarship Tax Credit Hub

About the Author: Julie Feasel serves as the director of communications and government relations for the Consortium of State School Boards Associations.