The federal government just created a $25.9 billion tax credit for private school tuition — and left off the cap
Summary
Starting in tax year 2027, donors get a federal credit worth 100% of what they give a private-school scholarship fund, up to $1,700 a person. The Joint Committee on Taxation prices the first eight years at $25.9 billion — and unlike every earlier draft of the bill, the enacted law puts no ceiling on how large that number can grow. It flows into a private-school sector that employs 482,570 teachers, one-ninth the enrollment of the public system next door.
How the credit works
A taxpayer gives cash to a state-recognized Scholarship Granting Organization (SGO) — a 501(c)(3) that must spend at least 90% of its revenue on scholarships, per the Congressional Research Service's summary of the enacted law. In return, the donor claims a federal credit equal to 100% of the gift, up to $1,700, cut from whatever federal income tax they owe. It is nonrefundable — a filer with no tax liability to offset gets nothing back — and it is reduced dollar-for-dollar by any state credit already claimed for the same gift, so it tops up existing state programs rather than stacking on top of them. On the receiving end, a scholarship can only go to a student whose household income is no more than 300% of the area median gross income, which covers the large majority of American families, per 's reading of the statute.
The mechanism isn't new — Arizona ran the first state-level version in 1997, and counts 22 tax-credit scholarship programs operating across 18 states as of August 2025. What's new is a federal credit layered on top, and, critically, what got cut on the way to passage: earlier versions of the bill (H.R. 833 and S. 292, per ) capped the total dollar amount of credits the could award in a given year and rationed it, mostly first-come-first-served. That volume cap was not included in the enacted law. Nothing in the statute limits how much the credit can cost as participation grows.
Follow the dollar — with the ceiling removed
View data as table
| FY 2027 | $501M | credit first claimable on 2027 returns |
|---|---|---|
| FY 2028 | $2,599M | |
| FY 2029 | $3,062M | |
| FY 2030 | $3,432M | |
| FY 2031 | $3,725M | |
| FY 2032 | $4,005M | |
| FY 2033 | $4,201M | |
| FY 2034 | $4,404M | 10-yr (FY25-34) total: $25,930M |
The Joint Committee on Taxation — Congress's own scorekeeper — put the credit's cost at $501 million in its first year and rising every year after, reaching $4.4 billion by FY2034, for a $25.9 billion total over the ten-year budget window. was explicit about the uncertainty baked into that number: the committee's footnote to the estimate says it "did not identify how it estimated the number of states that would participate in the program" — a candid admission that the score is a projection of a brand-new, uncapped, opt-in system with no operating history to model from. Every year the curve keeps climbing through 's ten-year window; nothing in the design flattens it.
The system it flows into
View data as table
| Public school students | 49.6M | NCES, fall 2022 |
|---|---|---|
| Private school students | 4.7M | NCES, fall 2021 |
The credit's money can only reach one side of that chart. Per NCES, the private sector it subsidizes enrolled 4.7 million K-12 students against 49.6 million in public schools — private schools are about a tenth the size of the system next door. That sector runs on 29,730 schools staffed by 482,570 full-time-equivalent teachers, per NCES's Private School Universe Survey. Those are the schools and the paychecks a new stream of scholarship dollars is being built to reach — the labor side of a program whose price tag, for now, is a projection.
States decide whether their residents can actually use it. By January 1 of each year, a participating governor must send Treasury a list of qualified SGOs operating in the state; residents of states that don't opt in can still donate to an SGO elsewhere, but their own children can't receive a scholarship unless an SGO recognized in their state serves them, per . As of the Department of Education and Treasury's joint fact sheet dated January 27, 2026, 23 states had opted in, with more state legislative and gubernatorial decisions still pending as the 2027 launch approaches.
The takeaway
- The one number that would have bounded the cost was cut from the final bill. Earlier drafts capped total annual credits and rationed them; the enacted law has no such ceiling, and 's own footnote admits it can't fully model how many states — or donors — will show up.
- It's a nonrefundable credit, so it rewards people who already owe federal tax. A donor with $1,700 or more in tax liability gets made whole for their gift; a donor with little or none does not, no matter how much they give.
- The dollars flow into a specific, countable system. 482,570 teachers and 29,730 schools, serving a tenth as many kids as the public system — a labor force and student population both directly measurable years before the first scholarship check goes out.
The $25.9 billion figure is 's pre-enactment score of the bill as passed by the Senate (fiscal years 2025–2034); it is a projection, not a realized cost, since the credit isn't claimable until 2027 returns are filed in 2028. Public and private enrollment figures come from 's two most recently published counts, one year apart (fall 2022 and fall 2021 respectively) — the gap is immaterial at this scale but the counts are not literally the same school year.
Sources
- Joint Committee on Taxation — Estimated Revenue Effects Relative to the Present Law Baseline of the Tax Provisions in "Title VII – Finance" of the Substitute Legislation as Passed by the Senate... (JCX-35-25, July 1, 2025) — the official ten-year cost score for the scholarship tax credit, including the year-by-year ramp used in the chart. jct.gov
- Congressional Research Service — Federal Tax-Credit Scholarship Program Included in P.L. 119-21 (R48724) — mechanics of the credit, the dropped volume cap, state opt-in process, income eligibility rule, and the count of existing state programs. congress.gov
- 26 U.S.C. § 25F — the enacted statutory text: credit amount, nonrefundability, effective date, and the 300%-of-area-median-income eligibility rule. uscode.house.gov
- National Center for Education Statistics — Fast Facts: Public and private school comparison — public (49.6M, fall 2022) and private (4.7M, fall 2021) K-12 enrollment. nces.ed.gov
- National Center for Education Statistics — Fast Facts: Private school statistics — 29,730 private K-12 schools and 482,570 full-time-equivalent private-school teachers, 2021–22. nces.ed.gov
- U.S. Departments of Education and Treasury — joint fact sheet on the Education Freedom Tax Credit (Jan. 27, 2026) — the 23-state opt-in count as of that date. ed.gov
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On July 4, 2025, the One Big Beautiful Bill Act (P.L. 119-21) created the first tax credit scholarship program ever run at the federal level. It works nothing like a grant program: no agency writes checks to schools, no appropriations bill sets an annual amount. It is a line in the tax code — 26 U.S.C. § 25F — that refunds a donor dollar-for-dollar, up to $1,700 a year, for giving to a nonprofit that hands the money to families as private-school scholarships. It takes effect for the 2027 tax year. States have to opt in. And in the version that actually passed, the one number every earlier draft included — a ceiling on how much the credit could cost in total — is gone.