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Children who are already enrolled in a need-based program, like nutrition assistance, would automatically be eligible for scholarships funded by the nation鈥檚 taxpayers, according to Treasury Department released Thursday morning.

For a policy that many fear will mostly benefit families in private school, that feature could increase the chances that low-income families in public schools apply. Kids in foster care would also be automatically eligible.

鈥淪imply showing that you qualify for that government assistance program is sufficient, and no additional paperwork is necessary,鈥� a Treasury Department official said Wednesday in a call with reporters.

That鈥檚 one of the long-awaited details of the new Education Freedom Tax Credit. By 2030, over 2 million U.S. children could be receiving scholarships for education services, officials estimate. The program, also called the Federal Scholarship Tax Credit, is an effort to 鈥渟upercharge鈥� access to private school choice and 鈥渆nable families to select learning environments that are the best fit for their children,鈥� an Education Department official said.

Estimated to reach roughly $26 billion annually 鈥� larger than the federal government spends on Title I or special education 鈥� the program is viewed as a game changer by school choice advocates. Private school tuition, tutoring and other eligible expenses will be funded through private donations from taxpayers who contribute to a scholarship granting organization, or SGO, and can receive a dollar-for-dollar credit, up to $1,700 or $3,400 for couples, when they file their taxes. Officials estimate that 96% of the nation鈥檚 K-12 students would qualify for support. But opponents of the program say it will increase the federal deficit and are skeptical that public school students will benefit. 

In a Wednesday, 25 pro-public school organizations called it 鈥渟imply a sweetener to entice states without vouchers to let the camel鈥檚 nose slip under the tent.鈥�

Proposed rules

Wherever they stand, both critics and supporters have been anxiously awaiting the official regulations, which fall into two parts. Under temporary rules to get the program started, states must elect to participate by Jan. 1. So far 30 have opted in and New York Gov. Kathy Hochul, a Democrat, has said she would. States then have until Feb. 15 to submit lists of qualifying SGOs, but those that have already registered in their states and submitted necessary paperwork can begin accepting donations Jan. 1. 

The Treasury Department also released proposed rules, which are now open for a 60-day public comment period. Among them:

• States can鈥檛 place restrictions on the kinds of schools that families choose or the types of expenses that scholarships fund, so long as they are allowable expenses, like tutoring, books and supplies, technology and services for students with disabilities. They also can鈥檛 exclude an SGO that otherwise meets the criteria.

• SGOs can鈥檛 earmark contributions for a particular student.

• Rules to prevent fraud would also include unique donor numbers and annual SGO reporting and audits. 

• Individuals who qualify for state tax credits would still be able to qualify for the new federal credit. They could also carry over unused credits for up to five years.

• Officials estimate that taxpayers will generate enough money to 鈥渟upport 600 to 700 SGOs,鈥� but said that another 450 organizations working across state lines could also potentially participate, adding another $3 billion in contributions. 

Students, even if their parents don鈥檛 owe federal taxes, will be eligible to receive scholarships if their families earn less than three times their area鈥檚 median income. But some experts predict that even if donations go to SGOs targeting public school students, the kids who live in wealthier neighborhoods will be more likely to benefit. 

鈥淭o be clear, donors could direct their funds to communities other than their own,鈥� Brookings Institution researchers wrote in a . 鈥淗owever, that would deviate from typical giving patterns.鈥� 

Using the Ohio Scholarship Donation Credit for comparison, because it shares some similarities with the federal program, the researchers found that high-income tax filers are far more likely to claim the donation credit and to claim larger credits 鈥� over $1,400 for filers earning over $500,000, compared with around $600 for filers earning in the $25,000 to $50,000 range.

They estimate that scholarship donations per student in the federal program will 鈥渟kew heavily鈥� toward the wealthiest counties, generating about three times as much as the poorest counties. That鈥檚 a departure from how federal funding for education has historically worked.

鈥淔or decades, the federal government has provided compensatory funding to students whose needs might not be met through local and state revenue streams,鈥� they wrote. 

鈥楽ignificant lift鈥�

Scenarios like the one that Brookings presents is why some experts, like Marguerite Roza, director of Georgetown University鈥檚 Edunomics Lab, have been pushing organizations that already support students in low-income communities, like local educational foundations, to form SGOs and be prepared to raise money in January. Public and private sector employers can set up employee giving programs and automatic payroll deductions. 

The new , a nationwide nonprofit, is another example. Led by former Tulsa Public Schools Superintendent Deborah Gist, the new SGO projects that it will raise $100 million for public school students over the next five years. 

While streamlining eligibility for kids from low-income families could increase the chances that they apply for scholarships, one policy expert said the process still needs to be 鈥渢ruly accessible.鈥� 

鈥淭his stuff is often very complicated and people don’t feel like it’s approachable,鈥� said Ellie Cash, senior K-12 education policy adviser at Third Way, a centrist think tank. 

She added that it could still be a 鈥渟ignificant lift,鈥� for a new SGO or a community-based organization serving low-income families to be prepared to collect donations and award scholarships next year, but that governors can help.

鈥淭hey might not be able to dictate certain requirements, but they can communicate that the vast majority of students who are eligible for this are public school students,鈥� she said. 鈥淭hey do have that power, and that will continue to be true as the rollout happens.鈥�

This is a breaking story and will be updated throughout the day.

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