The Trump administration is proposing a new regulation that would remove the tax-exempt status for private schools and colleges that provide benefits based on race, a significant step in the White House's initiative to eliminate diversity programs aimed at minority students.
The Treasury Department unveiled the proposal Thursday, which, if finalized, would take effect after May 2027. The rule targets policies or programs that assist students due to their race, specifically stating that such benefits in admissions, scholarships, and facilities would be incompatible with the regulation.
This marks the latest effort by the Trump administration to compel educational institutions to discontinue diversity, equity, and inclusion (DEI) policies, which had become prevalent. Administration officials have invoked Civil Rights-era laws to dismantle these policies, asserting they discriminate against white and Asian American students.
Treasury Secretary Scott Bessent indicated that even policies rebranded from DEI could be subject to the rule. "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature," Bessent stated.
The Treasury Department and IRS estimate that the proposal could impact as many as 18,000 private educational institutions. Historically, America's private universities have held tax-exempt status for over a century, recognized for providing a public good, a benefit that saves many institutions millions annually.
President Trump has previously used the prospect of revoking this tax-exempt status as leverage in his campaign against what he termed "woke" colleges. He had threatened to do so for Harvard University, a move the university's officials argued lacked legal basis and would necessitate cuts to financial aid and research.
Instances of the federal government challenging a college's tax-exempt status are rare. A notable precedent occurred in the 1970s when Bob Jones University, a Christian school, lost its tax-exempt status due to a ban on interracial dating and marriage. The Supreme Court upheld this decision, though the university has since removed the ban and regained its tax-exempt status in 2017.
Federal law prohibits the IRS from targeting organizations for ideological reasons, and officials are barred from directing IRS investigations. To retain nonprofit status, which allows for tax-deductible donations, organizations must adhere to IRS rules regarding lobbying, political activities, and reporting.
The Trump administration frames the proposed regulation as a move toward reinstating meritocracy in educational systems.
Leaders in higher education have expressed concerns. Mike Gavin, president and CEO of the Alliance for Higher Education, stated, "The administration’s latest rules changes are its most blatant attack to keep working class Americans and people of color from accessing higher education and a better life." He added, "By claiming that efforts to increase fair opportunity for all students are discriminatory, the administration is trying to gaslight the American people into believing that up is down and black is white."
Marjorie Hass, president of the Council of Independent Colleges, suggested the change would likely affect donations, particularly those designated for scholarships. Tim Powers, vice president of the National Association of Independent Colleges and Universities, noted that the uncertainty surrounding the proposal presents challenges.
"Our institutions are committed to complying with applicable civil rights laws and maintaining safe and supportive campuses free from discrimination," Powers said. "However, the proposed rule may create new compliance burdens and legal uncertainties for institutions of higher education that are already operating in line with existing nondiscrimination rules."
Separately, the Justice Department has initiated investigations into several medical schools accused of preferential treatment for Black and Hispanic students in admissions. Trump administration officials maintain that such practices violate Title IV of the Civil Rights Act of 1964, which prohibits discrimination in education.
IRS Chief Executive Officer Frank J. Bisignano stated, "Today’s proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status."