On September 3, 2026, the Treasury Department introduced a proposal to remove tax-exempt status from private educational institutions using race-based criteria for admissions or scholarships. This regulatory shift targets thousands of schools in an effort to dismantle diversity and equity initiatives across the United States.
The 18,000 institutions facing tax liability
The Treasury Department and the IRS estimate that up to 18,000 private schools, colleges, and other educational institutions could be impacted by this proposed rule. According to the report, the regulation would strip federal tax exemptions from any institution providing targeted help to students based on race, specifically regarding admissions, scholarships, or facilities. If the rule is finalized, it is expected to take effect after May 2027.
For many of these 18,000 institutions, the loss of tax-exempt status would be a financial catastrophe . Private universities have historically been exempt from various taxes because they are viewed as providers of a public good, a status that saves many schools millions of dollars annually. IRS Chief Executive Officer Frank J. Bisignano stated that schools continuing to engage in racial discrimination should expect to lose this status, framing the move as a necessary step to ensure compliance with non-discriminatory practices.
From Bob Jones University to the 1964 Civil Rights Act
The Trump administration is grounding this proposal in the Civil Rights Act of 1964,specifically Title IV, which prohibits discrimination in education. Administration officials argue that race-based preferences in admissions and scholarships actually discriminate against Asian American and white students. This represents a pivot in the interpretation of civil rights law, using a statute originally designed to fight seregation to instead dismantle race-conscious diversity programs.
Historically , the revocation of tax-exempt status for ideological or discriminatory reasons has been rare. As the report notes , a prominent example occurred in the 1970s when Bob Jones University in South Carolina lost its tax benefits for banning interracial dating and marriage. While the Supreme Court upheld that decision, Bob Jones University eventually ended the policy and regained its tax-exempt status in 2017. The current administration is now attempting to apply a similar logic to modern diversity , equity, and inclusion (DEI) frameworks.
The threat to Harvard and the battle over "wokeness"
The broader campaign against higher education has frequently centered on elite institutions. President Trump has previously described certain colleges as "hotbeds of wokeness" and specifically threatened to revoke the tax exemption of Harvard University, the oldest college in the United States. This targeted approach suggests that the Treasury Department's rule is not merely a bureaucratic adjustment but a political lever intended to force ideological alignment.
Harvard University officials have pushed back against these threats, arguing that there is no legal basis for such a revocation. They have warned that losing tax-exempt status would lead to severe cuts in medical research and student financial aid. This tension highlights a growing divide between the federal government and the administration of private universities over the definition of merit and equity in American education.
Will Scott Bessent target policies without DEI labels?
One of the most significant uncertainties involves the scope of enforcement. Treasury Secretary Scott Bessent has suggested that the administration may target policies that no longer use the "DEI" label but still achieve the same race-based outcomes. This creates a precarious environment for administrators who may attempt to rename their programs to avoid scrutiny but still maintain their core missions of accessibility.
The potential for legal chaos is high, according to Tim Powers, vice president of the National Association of Independent Colleges and Universities, who noted that the rule creates new compliance burdens and legal uncertainties. Additionally, Marjorie Hass, president of the Council of Independent Colleges, pointed out that the rule would likely devastate donations, which are frequently earmarked for specific scholarships. It remains unclear how the IRS will distinguish between "discriminatory" race-based help and legitimate efforts to increase opportunity for underrepresented students.
Comments 0