Federal Tax Credit for Education: Part 2 - Eroding Public Education
- Marj Shavlik
- Aug 25
- 5 min read
Introduction
In Part 1, we examined how the new federal education tax credit rewards donors with dollar-for-dollar reimbursements, creating a lucrative tax shelter with minimal oversight. But while donors are guaranteed a return, students are left navigating a maze of eligibility, availability, and state politics.
In part 2, we focus on the real cost of the program: diminished public investment, deepened inequality, and a system that prioritizes tax strategy over educational equity.
The federal education tax credit may be marketed as a win for families, but its structure tells a different story. The tax credit guarantees a dollar-for-dollar benefit to contributors, but students only receive scholarships if:
Their state opts in,
SGOs raise enough money,
Students meet eligibility criteria,
And they’re selected.
There’s no federal guarantee of aid for students.
Scholarship Eligibility and Grant Use
To qualify for the scholarship grants, the student:
Must be from households earning ≤300% of county median income.
Must be eligible to attend public school.
Scholarships can be used for:
Tuition and fees
Tutoring and special needs services
Books, supplies, computers
Transportation
Room and board (if applicable)
The household earning cap of up to 300% of county median income might sound generous, and it’s clear that the bill aims to draw more medium-income families to private schools. But here is the reality check: According to Zahava Stadler, project director of the education equity initiative at New America, a left-leaning think tank, the average private school in the United States is upwards of $12,000 a year, which makes it very unlikely that the federal tax credit will let anybody who is not already affluent access private schools.
Even with federal scholarships in hand, families may struggle to find private school options, especially in rural areas with limited supply, or they may find a lack of open seats in the schools they prefer. (Note: See State Voucher Programs Signal Pitfalls for Trump’s New Education Tax Credits in the Sources & Further Reading below.)
States Have Options
According to governance expert Jon Valant of Brookings, states do have a choice—and a chance to reshape the program. States can:
Opt out entirely, rejecting the program.
Opt in passively, letting SGOs operate under federal rules.
Or opt in strategically, adding guardrails to redirect funds toward public school supports like tutoring, transportation, and enrichment services.
This is a federal entitlement for donors—but states can choose to redirect its impact, according to Valant. By opting in strategically, they can certify SGOs that prioritize public school support like tutoring, transportation, and enrichment services. The donor gets the credit either way—but the student experience depends entirely on how the state shapes the program.
This version (opt in strategically) preserves the core critique (donor-first design) while acknowledging the policy lever states can use to mitigate harm or redirect funds toward equity.
All that sounds good but of the ten states providing universal private school choice programs today only one mandates state testing. States haven’t established metrics for success and don’t require private schools to administer state standardized tests or report academic results.
What Happens if SGOs Don’t Raise Enough Donations?
If a state opts in to the federal education tax credit program but SGOs fail to raise sufficient funds, then students simply won’t receive scholarships. There is:
No federal guarantee of aid
No fallback funding from the state or federal government
No automatic enrollment in private schools
Students who qualify but don’t receive a scholarship would have to remain in or return to public schools unless their families can afford private tuition without assistance.
We’ve seen this time after time in Arizona with different ESA programs. The burden of educating the student falls back to public schools, and the money spent is no longer available to the public school.
Diminished Public Investment
Look no further than Arizona to see the strain ESA programs put on the public schools. A recent article in the Arizona Republic reported that forty-eight district schools across Arizona are scheduled to close or merge by the end of the 2025-26 school year. The hardest hit schools cite enrollment losses of 10—25% since the ESA expansion. (Note: Arizona Republic, “Arizona School Closures Mount as ESA Program Expands.” (published August 2025))
Public schools are losing students to private and homeschooling options funded by ESAs, which reduces per-pupil funding and destabilizes district planning. Resulting budget shortfalls force districts to cut staff, reduce programs, and shutter schools, especially in lower-income areas where public schools are the primary education option.
Special education programs, bilingual instruction, and extracurriculars are often the first to be cut, disproportionately affecting students who rely most on public support.
We can talk about the private schools’ lack of transparency, the educational inequity they create, and the widening gap between those who can opt out and those left behind. But the architects of this program have shown little concern for transparency, equity, or student outcomes—placing ideological commitment to “choice” above the realities of educational access. (Note: The 74, State Voucher Programs Signal Pitfalls for Trump’s New Education Tax Credits, see Sources & Further Reading)
Arizona’s Crossroads
Arizona already has one of the most expansive voucher systems in the country, including universal Empowerment Scholarship Accounts (ESAs) and generous state-level tax credits for private school donations. But Governor Hobbs has not yet announced whether the state will opt in to the new federal education tax credit program. The federal tax credit program for education could be rejected in its entirety.
But if Arizona does opt in:
Arizona must create its own policies to redirect the program’s impact. This will take time. (SGO contributions apply to tax year 2027.)
Arizona must create its own policies and certify SGOs.
Donors will have to choose: They can claim either the state-level tax credit or the federal credit, but not for the same donation. According to the One Big Beautiful Bill Act, the federal credit is reduced by any state tax credit received for the same contribution.
Families may still be able to combine ESA vouchers with federal scholarships, creating layered subsidies for private education.
Take Action
Arizona’s decision isn’t inevitable. Here’s how you can help protect public education:
Contact Governor Hobbs: Let her know how you feel about Federal Tax Credits for Education.
Support local public schools: Volunteer, donate, and advocate for equitable funding.
Educate your community: Share this information at town halls, paint parties, and organizing meetings.
Public education is a public good. Let’s defend it—together.
Sources & Further Reading
Zahava Stadler, Project Director of the Education Equity Initiative at New America, a left-leaning think tank, on the average cost of private schools in the United States.
Jon Valant, Governance Expert at Brookings, on state options for reshaping the federal education tax credit program.
[Brookings] (https://www.brookings.edu/people/jon-valant)
[Center for Education Policy Analysis] (https://cepa.standford.edu/people/jon-valant)
State Voucher Programs Signal Pitfalls for Trump’s New Education Tax Credits.
The Arizona Republic, “Arizona School Closures Mount as ESA Program Expands.” (published August 2025)
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