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The Treasury Department took an important step Oct. 1 by releasing proposed rules for the Federal Scholarship Tax Credit program, which allows approved organizations to provide families with funding for a broad range of educational services, using money donated by taxpayers. 

With 30 states already signed up and more considering opting in, the central question is no longer whether the program will expand; it’s whether it will be implemented well. 

Governors should now work to see that the students with the greatest needs will benefit from the program and that the providers it funds will deliver strong academic outcomes. They can do this by building strong scholarship-granting organizations, helping families navigate the marketplace and investing in research, transparency and continuous improvement.

A voluntary, philanthropy-supported national infrastructure could help states and the nonprofits that administer scholarships to strengthen implementation while preserving state flexibility. This could help organizations with technical assistance, such as registering with the IRS, setting up required audits and meeting spending rules, along with fundraising and implementing best practices. It could also support independent research and establish consistent ways to track student participation, family satisfaction and academic progress to identify high-performing providers.

To ensure the scholarship programs function effectively and realize their full potential, governors and states should take three important steps now to support implementation. 

Build strong scholarship-granting organizations

The new rules require states to submit to Treasury a list of every qualified scholarship-granting organization that applies to participate in the program. Those that are approved will become the backbone of successful implementation. 

The department estimates that 600 to 700 new and existing scholarship-granting organizations will be operating in participating states by 2030. Nonprofits that devote at least 85% of their work to scholarships have to meet the federal requirements only for their tax-credit funds, while groups with broader missions are required to meet them across the whole organization. So some may set up separate scholarship organizations instead.

States must submit their lists of scholarship-granting organizations for the first year by Feb. 15. That’s an incredibly short time frame for registering with the IRS, meeting the spending and audit requirements and getting added to the list. 

The organizations must therefore quickly earn the confidence of families, donors and education service providers while developing the capacity to administer scholarships responsibly. But the regulations bar states from imposing stricter operating requirements than those found in federal law.

Therefore, governors, business leaders, mayors and community groups should use their ability to convene and communicate now to encourage philanthropy and help build strong local scholarship nonprofits. A coordinated effort can support new scholarship-granting organizations with model governance documents and a pipeline of local leaders willing to launch and lead them.

Help families navigate the marketplace

School choice works best when families can confidently identify high-quality educational opportunities. 

Treasury estimates that 96% of children ages 5 to 17 in participating states will be eligible for the program, but its own analysis acknowledges some potential barriers to be addressed, including parents’ awareness of the scholarships, their understanding of whether they qualify and their ability to complete the required paperwork. 

States can partner with trusted community organizations to help families understand scholarships, evaluate providers and select the services that best meet their children’s needs. In practice, this could look like plain-language guides to eligibility and deadlines, as well as navigators who can walk families through income verification and the application process.

The goal isn’t simply to expand choice, but to ensure every family — especially those with the fewest resources — can make informed decisions.

Invest in research, transparency and continuous improvement

Treasury projects gains in test scores and college enrollment, but nothing in the program structure tracks whether those increases will actually happen. 

Policymakers, donors and families will rightly want to know whether the program expands access to high-quality educational opportunities and improves student outcomes. But as is, it doesn’t have a structured student achievement initiative or require formal evaluations. States should pick up those responsibilities.

Scholarship-granting organizations won’t have the capacity. They must spend at least 90% of their income on awards to students, so many will have limited ability to invest in research, technical assistance, quality assurance and continuous improvement. But the proposed rules do allow organizations focused mainly on scholarships to raise separate funds for those costs, creating an opportunity for philanthropy. 

One idea would be to create a philanthropic coalition that would fund the creation of public dashboards that leverage already-mandated reporting program data, such as the number of applicants and recipients, the schools they attend and the amounts awarded. Down the line, this should also include information about family satisfaction with providers and measures of student outcomes. 

Why it matters

Affluent parents have long supplemented their children’s education through tutoring, enrichment programs, specialized services and alternative schooling. The new program extends similar opportunities to middle- and lower-income families.

Whether these ultimately translate into better outcomes will depend on the strength of the organizations that administer the program, the quality of information available to families and the evidence generated over time. 

States, philanthropies and community organizations should seize this opportunity to build the implementation, research and parent-support infrastructure needed to ensure the Federal Scholarship Tax Credit program delivers on its promise.

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