New federal tax credit could expand school choice programs like Louisiana’s

Published 11:34 am Thursday, July 10, 2025

By American Press Staff

(Metro Creative Services)

By Nolan McKendry | The Center Square

A new federal tax credit program tucked into a broader tax bill passed by Congress could significantly expand private school scholarship options for low and middle-income families nationwide — if states choose to participate.

President Donald Trump’s One Big Beautiful Bill creates a federal income tax credit of up to $1,700 per year for individuals who donate to certified scholarship granting organizations. These groups, typically nonprofits, use donations to fund private school tuition scholarships for students from qualifying low-income households.

Louisiana is well-positioned to plug into the new federal program. For more than a decade, the state has run a similar tax credit scholarship initiative. Organizations like ACE Scholarships Louisiana, Aspiring Scholars, Arete Scholars and Son of a Saint currently operate under the Louisiana Department of Education’s oversight, using private donations to fund tuition scholarships for eligible families.

But the new federal program, set to begin in 2027, would create a parallel system with national reach. Governors will decide whether their states opt in, and participating states will need to certify which scholarship granting organizations meet federal requirements.

“This could definitely make more choices and more financial assistance available to families — which is always a good thing,” Erin Bendily from the Pelican Institute said. “But it may be especially beneficial in states that don’t already have these types of programs.”

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Under the federal framework, qualifying scholarship granting organizations must meet strict requirements. They must spend at least 90% of donations on scholarships, verify family income eligibility, avoid earmarking funds for specific students and prioritize current or returning scholarship recipients.

To prevent double-dipping, the value of the federal tax credit would be reduced by any state tax credit the donor receives. And contributions claimed under the federal program cannot also be deducted as charitable donations.

Additionally, the legislation expands the types of education expenses that can be covered by 529 college savings accounts. Beginning in 2026, families will be able to use those tax-free accounts for private K-12 tuition, tutoring by licensed teachers, dual enrollment fees, and even special education therapies. The annual withdrawal limit for K-12 use will rise from $10,000 to $20,000.

Separately, the bill makes permanent a federal tax exclusion for employer-paid student loan assistance and ties it to inflation, making such benefits more attractive for workers and employers alike.

The changes are being hailed by school choice proponents, but not without caution. Education policy observers note that the legislation invites deeper federal involvement in K-12 policy — a space traditionally overseen by states.

“There’s always excitement when families get more options,” Bendily added, “but some people do worry about the federal government stepping into what’s always been a state-led area.”

Bendily mentioned the contentious debate about the federal government’s role in education.

“Do we need a federal agency? If so, you know, what power should it have? How can its work perhaps, be done in a different way, maybe through other agencies? How many strings attached should come with federal money that go down to states and schools at the local level. These are all very important questions,” Bendily continued.

It’s not yet clear how Louisiana will respond. Gov. Jeff Landry has not announced whether the state will join the program

Questions also remain about how families currently receiving state-level scholarships would interact with the federal program. Could they receive both? Would they have to choose?

“These are the kinds of questions we’ll need to work through — both at the policy level and in conversations with families,” Bendily said.

The new federal credit does not require states to already have a program in place, meaning states with no current school choice infrastructure could now develop one with federal backing.

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