The Trump administration has proposed stripping private schools, colleges and other educational institutions of their tax-exempt status if they provide admissions, scholarships or other benefits to students based on race.The proposed rule, announced by the Treasury Department on Thursday, could affect as many as 18,000 institutions and is part of President Donald Trump’s broader push to eliminate race-based diversity programmes in education, the Associated Press reported.Under the proposal, schools that provide benefits on the basis of race, colour or national or ethnic origin could lose their tax-exempt status. However, the rule would not cover religious institutions or race-neutral considerations such as family income, individual hardship, military family status or academic achievement.Treasury Secretary Scott Bessent said institutions would not be able to avoid the proposed restrictions simply by changing the language used to describe race-based programmes.“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Bessent said.The proposal would apply to private primary and secondary schools, colleges, universities, professional schools and trade schools, including institutions that do not receive federal funding.
Schools could face fundraising impact
Losing tax-exempt status could have consequences beyond the taxes institutions themselves would have to pay. Donations to tax-exempt organisations are generally eligible for tax deductions, meaning schools could find it harder to attract contributions if donors lose that benefit.The administration has increasingly used federal policies to challenge diversity, equity and inclusion programmes at educational institutions. Trump has also targeted Harvard University in his broader dispute with colleges over what he has described as ideological and antisemitic problems on campuses.The proposed regulations are scheduled to apply to taxable years beginning on or after May 31, 2027, if they are finalised. The proposal will first go through a public comment process and could be modified before becoming final.
Supreme Court ruling cited
The Treasury Department cited a 2023 Supreme Court ruling involving Students for Fair Admissions in support of the proposed regulations. The court ruled that colleges could not consider race in admissions decisions under the Equal Protection Clause of the 14th Amendment.The ruling directly concerned admissions, but its impact extended to other areas of higher education, including race-specific scholarships and financial aid programmes.There is also a historical precedent for the government revoking a college’s tax-exempt status. Bob Jones University lost its tax exemption in the 1970s after maintaining a policy banning interracial dating and marriage. The Supreme Court later upheld the IRS decision.Education leaders have criticised the latest proposal, warning it could create additional compliance requirements and uncertainty for colleges while affecting scholarship funding.The administration, however, has described the move as an effort to ensure that educational institutions follow federal civil rights requirements and restore merit-based policies.
