The Trump administration on September 3 proposed regulations that could strip private schools of federal tax-exempt status if they provide targeted benefits based on race. The Treasury Department and Internal Revenue Service said the proposal would cover admissions, educational policies, scholarships and loans, athletics, and other school-administered or supported programs. The move is part of the administration's broader effort to restrict race-based policies in education.

Treasury and the IRS estimate the proposal could affect as many as 18,000 private educational institutions, including primary and secondary schools, colleges, universities and professional or trade schools. Reuters reported that about 750,000 students who may qualify for race-based scholarships could also be affected. If finalized, the rules are expected to apply to tax years beginning after May 31, 2027.

The administration argues that schools should not retain tax-exempt benefits when they use race-based preferences, even if those programs are described as promoting diversity, equity or inclusion. Civil rights groups and higher education organizations counter that such programs can address longstanding racial disparities and have criticized the proposal as an attempt to use tax policy against diversity initiatives. The American Association of University Professors is considering legal action.

The proposal would still allow private religious schools to maintain their religious mission and select students based on genuine religious affiliation. Schools could also assist disadvantaged students using race-neutral factors such as family income, geography, first-generation status, hardship, military-family status or academic achievement. The regulations remain subject to public comment and are expected to face legal challenges if finalized.