Treasury Proposes Rule to Strip Tax-Exempt Status From Schools With Race-Based Programs

The Treasury Department and IRS proposed new regulations Thursday that would revoke tax-exempt status from private schools and colleges that use race in admissions, scholarships or other school-run programs, extending the Trump administration’s campaign against diversity initiatives in education.

The proposed rules target what administration officials describe as discrimination against white students in favor of students of color. Treasury Secretary Scott Bessent said in a statement that “schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature.”

The proposal comes two years after the Supreme Court’s 2023 Students for Fair Admissions ruling, which barred most race-conscious admissions policies at colleges and universities.

Under the proposed rule, admissions, educational policies, scholarships and loans, athletics and “every other school-administered or school-supported program” would be covered. It would apply to any program that considers race, color, or national or ethnic origin “for any purpose,” including programs meant to address past discrimination.

The Treasury Department estimated the rule could affect as many as 18,000 schools across all education levels and 750,000 students who might qualify for race-based scholarships.

The proposal would not stop private schools from maintaining a religious mission, curriculum or program, and religious schools could still select students based on religious affiliation, according to the Treasury. The department also said schools would still be permitted to help disadvantaged students using race-neutral factors such as income, geography or first-generation status.

The rule is now subject to a public comment period and is expected to face legal challenges if it is adopted.

Opposition from academics

The American Association of University Professors, which advocates for academic freedom and has previously sued the administration over funding cuts, said it is considering legal action against the proposal.

“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,” AAUP President Todd Wolfson said in a statement. “For half a century, federal policy recognized that measures intended to dismantle entrenched racial exclusion are not equivalent to policies designed to preserve it.”

Since President Donald Trump returned to the White House in January 2025, his administration has worked to eliminate diversity, equity and inclusion policies in both K-12 schools and higher education. Beyond DEI, it has scrutinized institutions over race-based admissions and scholarships and alleged antisemitism on campus.

Harvard University has been a particular focus of the administration, facing federal funding cuts, investigations and threats to its own tax-exempt status.