The Treasury Department has proposed new rules that could strip federal tax-exempt status from as many as 18,000 educational institutions if they continue offering admissions preferences, scholarships, financial aid or other programs that discriminate on the basis of race or national origin.
By yourNEWS Media Newsroom
The Treasury Department is moving to tighten the conditions schools must meet to retain federal tax-exempt status, targeting educational programs that use race or national origin in admissions, scholarships, financial aid and related benefits.
Under the new policy announced this week, schools could lose their tax exemption if they maintain programs the administration determines discriminate on racial or national-origin grounds.
Treasury estimates that as many as 18,000 institutions could be affected.
The proposed regulations are part of the Trump administration’s broader effort to eliminate race-based preferences in education and establish a uniform federal standard for institutions receiving favorable tax treatment.
Treasury Secretary Scott Bessent said schools would not be able to preserve race-conscious programs simply by describing them as diversity, equity or inclusion initiatives.
“Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education,” Bessent said. “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature. Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”
The department is also eliminating Internal Revenue Service provisions that previously allowed certain distinctions based on race in areas such as admissions, scholarships and financial aid.
The revised framework does not prohibit schools from offering targeted assistance altogether.
Institutions would still be permitted to structure scholarships, aid and other support using race-neutral criteria.
That distinction leaves schools able to direct resources toward students based on factors such as financial need or other permissible qualifications while removing race or national origin as the basis for determining eligibility.
The policy therefore links an institution’s federal tax benefits to compliance with the administration’s nondiscrimination standard.
Schools that continue using race-based preferences could face consequences extending beyond the individual admissions or aid program itself because losing tax-exempt status could affect the institution’s broader financial structure.
The Treasury and IRS action also broadens the administration’s scrutiny beyond college admissions alone.
Scholarships, financial aid and other educational programs would be subject to the same general rule, preventing institutions from shifting race-conscious preferences from one part of their operations to another while retaining tax advantages.
Bessent characterized the change as a matter of equal treatment rather than program labeling, arguing that the legal character of a preference does not change simply because a school presents it as a diversity measure.
With Treasury estimating that up to 18,000 institutions could fall within the scope of the new standard, the proposal could force a wide range of schools to reassess how they structure admissions, scholarships, financial aid and other student-support programs.
Institutions would still have room to pursue assistance for disadvantaged or underrepresented students, but they would have to do so through criteria that do not discriminate on the basis of race or national origin.
The result is a significant change in federal tax policy toward educational institutions: schools that maintain race-based preferences could now risk losing the tax-exempt treatment that has long supported their operations.
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