Starting in 2027, taxpayers can claim a credit against their federal income taxes for donating up to $1,700 to nonprofits that award K–12 scholarships. States choose whether to participate, and only donations to scholarship organizations in participating states qualify. If enough taxpayers give, the Federal Scholarship Tax Credit (FSTC) could become one of the largest new sources of federal funding for K–12 education in decades.
The word “scholarship” suggests this money will mostly pay tuition at existing private schools. But the law is written more broadly: students don’t have to leave public schools to receive a scholarship, and scholarships can cover a range of educational expenses beyond private school tuition. That latitude raises a question that the debate over this policy has largely skipped past. Could this funding reach the learning experiences and school models that neither public nor private systems currently support?
In this report, senior research fellow Thomas Arnett and Ed3 convenor Greg Nadeau map two paths the money could take. The additive path funds experiences that sit alongside conventional schooling. The redesign path funds schools built on an entirely different model.
Whether the FSTC reaches either path depends on five conditions, and the federal law by itself settles none of them:
- The paths can open.
- The money shows up.
- The money funds innovative programs, not just familiar ones.
- Incentives point innovation toward the students who are hardest to serve.
- Oversight protects without strangling.
A lit fuse can fizzle as easily as it can ignite, and which one happens will be decided by an array of choices over the next several years.
This report illuminates the intricacies of the FSTC and what each condition entails. Dive in to learn more.
