Trump administration wants to strip tax-exempt status from schools over race-based programs

The Trump administration moved forward this week with a new proposal that would strip tax-exempt status from private schools and colleges that continue using race in decisions around admissions, scholarships, or financial aid. Per Fox, the Treasury Department and IRS issued the proposed regulation Thursday, marking a significant escalation in the administration’s ongoing campaign against diversity, equity, and inclusion policies on campuses.

The rule specifically targets private institutions, not public schools, and would eliminate current IRS guidance that allows schools to factor race into admission preferences, scholarships, financial assistance, or campus facilities. According to the Treasury Department, the proposal could affect as many as 18,000 private educational institutions nationwide, ranging from primary and secondary schools up through universities and trade schools.

Treasury Secretary Scott Bessent framed the move as closing a loophole schools have used to keep race-based programs alive under different branding. “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Bessent said in a statement announcing the rule. The administration has repeatedly pointed to the Supreme Court’s 2023 decision ending race-conscious college admissions as legal justification for this and earlier attempts.

Not everyone agrees this is about fighting discrimination

Losing tax-exempt status is not a minor inconvenience for any of these institutions. Private schools and universities have operated tax-exempt for more than a century under the idea that they provide a public benefit, and that status saves many of them millions of dollars annually while making donations to them tax-deductible for donors. If this rule takes effect, schools that don’t comply would lose both of those financial protections at once.

If finalized, the regulation would kick in after May 2027, giving affected institutions a window to adjust their policies or prepare for the fallout. The proposal still has to clear several rulemaking hurdles first, including a public comment period, before it can become official policy, so nothing here is locked in yet.

Opposition has already started forming. The American Association of University Professors, which represents faculty and has been involved in several lawsuits against the administration’s higher education policies, condemned the proposal directly. “Weaponizing the IRS to attack colleges and universities that uphold and expand civil rights is outrageous,” AAUP President Todd Wolfson said in a statement.

Scores of universities have already shut down or rebranded their DEI offices and ended race-targeted scholarships and clubs. This is due to pressure from the White House well before this proposal was announced.

This is not the administration’s first attempt to use the tax code as leverage either. The administration previously threatened to strip tax-exempt status from Ivy League schools over claims of discriminatory admissions practices. Basically, the fight over how far this authority actually extends is likely far from over.