The Trump administration has proposed a new rule that would revoke the tax-exempt status of private schools and colleges that offer targeted assistance to students based on race. This proposal, announced by the Treasury Department on Thursday, is aimed at eliminating policies that provide benefits in admissions, scholarships, and facilities based on race, stating that such practices would be incompatible with the new regulation. If finalized, the rule would take effect after May 2027.
This move is part of a broader effort by the Trump administration to challenge diversity, equity, and inclusion (DEI) policies that have been prevalent in educational institutions. Officials argue that these policies discriminate against white and Asian American students. Mike Gavin, president and CEO of the Alliance for Higher Education, criticized the proposal, claiming it undermines access to higher education for working-class Americans and people of color.
The proposal could potentially affect up to 18,000 private educational institutions. Treasury Secretary Scott Bessent indicated that even rebranded policies that no longer explicitly mention DEI could still be scrutinized under this rule. The administration views the tax-exempt status as a means to pressure colleges perceived as promoting 'wokeness.'
Historically, the federal government has rarely revoked tax-exempt status from colleges, with one notable case being Bob Jones University, which lost its exemption in the 1970s due to a ban on interracial dating. The Supreme Court upheld this decision.
The proposed rule raises concerns among higher education leaders about its potential impact on donations and compliance burdens. Tim Powers, vice president of the National Association of Independent Colleges and Universities, noted that the uncertainty surrounding the proposal could create challenges for institutions already adhering to existing nondiscrimination laws.
The Justice Department is also investigating several medical schools for allegedly favoring Black and Hispanic students in admissions, claiming this violates Title IV of the Civil Rights Act of 1964. IRS CEO Frank J. Bisignano stated that institutions engaging in racial discrimination should expect to lose their tax-exempt status.
Experts suggest that the outcome of this proposal could influence how Democrats respond if they regain power, with some indicating that a widespread revocation of tax-exempt status could provoke significant political repercussions.