Trump administration proposes stripping tax-exempt status from schools using race-based programs

Trump Administration Proposes Rules to Strip Tax‑Exempt Status from Schools that Use Race‑Based Admissions or Scholarships

WASHINGTON – On Thursday, the U.S. Treasury Department and the Internal Revenue Service released a proposal that would revoke the tax‑exempt status of any private school, college or university that incorporates race, color or national or ethnic origin into its admissions, scholarship, athletics or other school‑administered programs. The proposal is part of a broader effort by the Trump administration to eliminate diversity, equity and inclusion (DEI) policies in education.

The Treasury’s plan would apply to “any program that considers race, color, or national or ethnic origin for any purpose,” including initiatives aimed at correcting the effects of past racial discrimination. The agency estimates that the rules could affect up to 18,000 schools at all levels of education and could disqualify 750,000 students from race‑based scholarships. Religious schools would remain exempt from the prohibition if they select students on the basis of religious affiliation, and institutions could still use race‑neutral criteria—such as income, geographic location or first‑generation status—to assist disadvantaged applicants.

“We cannot accept schools that rebrand race‑based preferences as equitable, inclusive, or diversity‑enhancing because that does not change their discriminatory nature,” Treasury Secretary Scott Bessent said in a statement. “The goal is to end discrimination against white students in favor of students of color.” The proposal is now open for a public comment period, and Treasury officials say it could be challenged in court if adopted.

The rules come after the Supreme Court’s 2023 Students for Fair Admissions decision, which barred most race‑conscious admissions policies at colleges and universities. The Treasury’s proposal would extend that restriction to a much wider range of school programs, including athletics and scholarship awards that are not strictly admissions decisions.

Potential Legal Backlash

The American Association of University Professors (AAUP), which has long defended academic freedom and sued the administration to protect federal funding cuts, has indicated that it may pursue legal action against the new proposal. In a statement, AAUP President Todd Wolfson said: “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 added that for fifty years, federal policy has recognized that policies designed to dismantle entrenched racial exclusion are not equivalent to those that preserve it.

Legal scholars predict that the Treasury’s plan will face multiple challenges. The proposal would alter the tax code for a vast number of private institutions, a move that could be contested as an overreach of executive power and as a violation of the First and Fourteenth Amendments. The Treasury has said it will defend the rules against lawsuits, but it has not yet identified the specific agencies that would enforce the changes.

Context of the Administration’s Push Against DEI

The Trump administration has been actively pursuing the removal of DEI programs in both K‑12 schools and higher education since President Donald Trump was re‑elected in January 2025. In addition to the proposed tax rules, the administration has launched investigations into alleged antisemitism on campus, targeted specific universities such as Harvard with funding cuts, and threatened the tax‑exempt status of institutions that it claims violate federal civil‑rights law.

The current proposal is one of the most sweeping attempts yet to curtail race‑based considerations in education. If enacted, it would create a new legal framework that treats the use of race in any school program as a violation of federal tax policy, potentially reshaping the admissions and scholarship landscapes across the country.

Next Steps

The proposal is now in the public comment phase, which will last several weeks. Stakeholders, including educational institutions, advocacy groups, and private foundations, have the opportunity to submit written comments or attend public hearings. After the comment period, the Treasury will review the responses and decide whether to finalize the rules.

If finalized, the administration will likely face immediate legal challenges in federal courts, as well as pushback from educational leaders who argue that race‑neutral and affirmative measures are essential for fostering diversity and correcting historical inequities. The outcome of these legal battles could have long‑lasting implications for how private schools and colleges navigate race in their programs and for the broader national debate over diversity and inclusion in education.