Trump Administration Proposes Stripping Tax-Exempt Status from Schools with Race-Based Programs

The Trump administration has put forward a new regulatory framework aimed at withdrawing the tax-exempt status of private educational institutions and colleges that incorporate race into their admissions processes, scholarship allocations, or other school-managed initiatives. This action, announced on Thursday, represents the latest governmental endeavor to dismantle diversity-focused programs within the educational sector.

These proposed rules, developed by the Treasury Department and the Internal Revenue Service, seek to eliminate practices that administration officials characterize as discriminatory against white students in favor of students of color.

Treasury Secretary Scott Bessent stated, "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature."

Scope and Potential Impact of New Regulations

The proposal aligns with the Supreme Court's 2023 Students for Fair Admissions rulings, which largely prohibited race-conscious admissions practices at higher education institutions. The Treasury's initiative would encompass a wide array of areas, including admissions criteria, educational policies, financial aid like scholarships and loans, athletic programs, and "every other school-administered or school-supported program."

It would apply to any program that considers an individual’s race, color, or national or ethnic origin "for any purpose," even if the intent is to address historical racial discrimination.

According to Treasury estimates, these regulations could potentially impact as many as 18,000 schools across all educational levels and affect approximately 750,000 students who might currently qualify for race-based scholarships.

The proposal clarifies that it would not prevent private schools from maintaining a religious mission, curriculum, or program. Religious institutions would retain the ability to select students based on their religious affiliation, as confirmed by the Treasury. Furthermore, the Treasury indicated that the regulations would not prohibit schools from assisting economically disadvantaged students through race-neutral criteria, such as income levels, geographic location, or first-generation college student status.

Legal Context and Opposition

The new proposal is currently open for a period of public comment and is widely anticipated to face legal challenges if it is ultimately adopted.

The American Association of University Professors (AAUP), a prominent organization advocating for academic freedom that has previously pursued legal action against the administration regarding funding reductions, announced it is evaluating potential legal challenges to this proposal. AAUP President Todd Wolfson commented:

"This is not neutral enforcement of civil-rights law. It is an affirmative attempt to turn civil-rights law against the very people it was enacted to protect." Wolfson further added, "For half a century, federal policy recognized that measures intended to dismantle entrenched racial exclusion are not equivalent to policies designed to preserve it."

Broader Administration Policy

Since President Donald Trump's return to the White House in January 2025, his administration has actively sought to dismantle diversity, equity, and inclusion (DEI) policies within both K-12 education and higher learning institutions. Beyond DEI initiatives, the administration has scrutinized educational bodies nationwide over various concerns, including race-based admissions and scholarships, as well as allegations of antisemitism on campuses. Specifically, Trump has highlighted Harvard University, subjecting it to federal funding cuts, investigations, and threats to its tax-exempt status.