The Department of the Treasury and the Internal Revenue Service (IRS) issued a proposed regulation on Thursday, September 3, 2026, to revoke the federal tax-exempt status of private schools that consider race in their admissions or programs. Under the rule, any private educational institution that maintains policies or practices discriminating on the basis of race, color, or national or ethnic origin would no longer qualify for 501(c)(3) status. Treasury Secretary Scott Bessent stated that the regulation is intended to provide a "clear standard" for institutions, asserting that "rebranding race-based preferences" as diversity initiatives does not change their "discriminatory nature."
The move follows several years of administration efforts to eliminate affirmative action practices in education. The Treasury Department cited the 2023 Supreme Court ruling in Students for Fair Admissions v. Harvard, which restricted the use of race in college admissions, as well as the 1983 case Bob Jones University v. United States, which established that tax-exempt institutions must comply with "fundamental public policy." Administration officials stated that these previous regulations were inconsistent with current case law and needed to be updated to ensure student treatment is based on individual experience rather than race.
The regulation would apply to approximately 18,000 private primary and secondary schools, colleges, universities, and trade schools. It covers admissions, scholarships, loans, athletics, and all other school-supported programs. While race-based criteria would be prohibited, the proposal allows schools to use "race-neutral" criteria to assist disadvantaged students, such as family income, geographic location, or military family status. The IRS also noted that religious schools could continue to select students based on religious affiliation to remain consistent with federal law.
Students at these institutions would likely see changes to how their schools manage admissions and financial aid applications as early as the 2027 academic year. Because the rule prohibits race-based preferences in scholarships and loans, applicants from minority backgrounds who previously qualified for race-specific aid might see those programs replaced by income-based or geographic-based assistance. Conversely, the administration argues this change ensures white and Asian students are not treated in a "negative manner" during the competitive admissions process, which would shift the focus of evaluations to individual merit and specific hardships.
The policy sets a precedent for using the tax code to enforce the administration's interpretation of Supreme Court rulings on affirmative action. If finalized, the regulation could lead to legal challenges regarding the IRS's authority to define "discriminatory nature" and how it monitors school policies. Sen. Chuck Schumer (D-NY) stated that Senate Democrats will oppose the measure, characterizing it as an assault on educational opportunity. The proposed rule must now undergo a public comment period; if approved, it is scheduled to apply to taxable years beginning on or after May 31, 2027.