The U.S. Treasury Department and Internal Revenue Service on Thursday unveiled a proposed rule that would strip schools of their tax-exempt status if they implement programs that provide targeted support to specific racial groups. The proposal, part of the Trump administration's effort to roll back diversity initiatives, would reach across a wide array of campus activities and applies to schools at all education levels.
Under the draft regulation, the departments would treat as impermissible any consideration of race "for any purpose" in admissions, educational policies, scholarships and loans, athletics and "every other school-administered or school-supported program." The scope explicitly includes programs that are intended to mitigate the effects of past racial discrimination.
"Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature," Treasury Secretary Scott Bessent said in a statement accompanying the proposal.
Administration officials framed the rule as a continuation of previous U.S. Supreme Court decisions that narrowed how colleges and universities may account for race in admissions. The departments said the proposal would put those principles into effect across tax-exempt educational institutions.
Civil rights proponents counter that many diversity and targeted-support practices are designed to address long-standing inequities experienced by marginalized ethnic minorities who faced legal discrimination for decades. Organizations defending such programs argue they are tools to promote equity, not discrimination.
The American Association of University Professors, which advocates for academic freedom and has previously sued the administration over funding cuts, said it is weighing legal action in response to the proposal. "This is not neutral enforcement of civil-rights law. It is an affirmative attempt to turn civil-rights law against the very people it was enacted to protect," AAUP President Todd Wolfson said. "For half a century, federal policy recognized that measures intended to dismantle entrenched racial exclusion are not equivalent to policies designed to preserve it."
Treasury officials estimated the proposed rule could affect as many as 18,000 schools across education levels and up to 750,000 students who might qualify for race-based scholarships. The departments noted certain limits and exceptions in their statement.
Specifically, the proposal would not prevent private religious schools from maintaining a religious mission, curriculum or program, and those schools could continue selecting students on the basis of religious affiliation. Treasury also said the draft rule would allow assistance to disadvantaged students when race-neutral criteria are used - for example income, geography or first-generation status.
Rights advocates have argued that the administration's actions against diversity policies at colleges threaten free speech, due process and academic freedom. The administration has singled out specific institutions in its enforcement and oversight actions - including funding freezes, investigations and threats to tax-exempt status for at least one prominent university cited by officials.
The proposal is subject to a public comment period. If the rule were finalized, advocates and affected institutions indicate it would likely prompt litigation challenging the change.
Summary
The Treasury Department and IRS have proposed rules to revoke tax-exempt status from schools that consider race in admissions, scholarships, loans, athletics or other school programs. The rule references recent Supreme Court limits on race-based admissions, would affect thousands of schools and hundreds of thousands of students, allows religious exemptions and permits race-neutral assistance criteria, and is expected to face legal challenges.
Key points
- The draft regulation would apply to admissions, educational policies, scholarships, loans, athletics and any school-administered or -supported program that considers race for any purpose.
- Treasury estimates as many as 18,000 schools and 750,000 students could be affected; religious schools retaining a religious mission and selection based on affiliation would not be barred.
- The proposal permits race-neutral forms of assistance such as criteria based on income, geography or first-generation status - sectors most directly affected include education institutions, nonprofit and higher education finance.
Risks and uncertainties
- Legal risk - The rule is likely to prompt litigation if finalized, creating uncertainty for affected schools and funders in the education sector.
- Operational risk for institutions - Schools may need to change admissions, scholarship and program criteria quickly, with impacts on student services and financial aid administrators.
- Reputational and governance uncertainty - Enforcement actions and public scrutiny could intensify for institutions previously engaged in race-conscious programs, affecting donor relations and public funding decisions.