Colleen Hroncich
Many in the K‑12 education world are anxiously awaiting the proposed regulations on the Federal Scholarship Tax Credit (FSTC). The program, enacted in the 2025 “One Big Beautiful Bill,” provides a dollar-for-dollar federal income tax credit, up to $1,700, for donations to approved scholarship-granting organizations.
The law requires the Secretary of the Treasury to issue “such regulations or other guidance” deemed necessary for the program. In June, the Treasury Department said the regulations would be issued “this coming back-to-school season—no later than the end of September.”
The end of September is rapidly approaching.
While I’m a strong supporter of school choice, I’m not a fan of having a federal school choice program for reasons I outlined when the law passed. In short, the Constitution gives the federal government no role in education, and the risks of federal overreach are too great.
However, since the FSTC was enacted and will be up and running on January 1, 2027, it’s crucial that it be implemented with as much freedom and flexibility as possible. One potentially problematic area in Treasury’s June preview of the forthcoming regulations was the definition of school.
To define eligible expenses, the OBBB relied on the law governing Coverdell education savings accounts, specifically section 530(b)(3)(A) of the federal tax code. This includes a broad range of educational expenses, such as tuition, tutoring, special needs services, and transportation, “incurred in connection with the enrollment or attendance” of the beneficiary “at a public, private, or religious school.” In a subparagraph that was not included in the OBBB, Coverdell also defines school as being “determined under State law.”
This is where the Treasury’s June preview gets tricky. Despite lawmakers explicitly excluding the Coverdell definition of “school,” the Treasury Department has indicated it expects to incorporate it into the rules. But this will discriminate against homeschoolers in most states. State statutes provide a variety of ways to recognize homeschooling. In many states, it has its own legal category or is under private tutoring; in 22 states, a home school is considered a private or religious school.
If Treasury moves ahead with using the Coverdell definition of school, homeschoolers in the 28 states that do not define a home school as a private or religious school will be ineligible for the program due to regulations, not the law itself. Homeschoolers who meet the statutory qualifications for the program and want to use it for eligible expenses will not be able to if the Treasury goes this route.
It would have been easy for lawmakers to include the Coverdell definition of a school when drafting OBBB. Instead of using 530(b)(3)(A), they could have referenced section 530(b)(3), which includes both the qualified-expense provision in subparagraph (A) and the school definition in subparagraph (B). They didn’t.
Moreover, there is reason to believe lawmakers were well aware of the problem Treasury’s interpretation could create for homeschoolers. The Educational Choice for Children Act, a precursor to the FSTC, listed eligible expenses instead of pointing to the Coverdell definition and explicitly noted it included homeschoolers, “whether treated as a home school or a private school for purposes of applicable State law.” This shows lawmakers knew that different states defined homeschooling differently and didn’t want those definitions to prevent kids from participating. By shifting to the Coverdell expense definition without incorporating Coverdell’s definition that limits “school” to a state’s definition, lawmakers rejected this discriminatory treatment of homeschoolers.
Treasury should respect the line Congress drew. Whatever one thinks of the federal tax credit itself, regulations should implement the program Congress enacted—not add a state-law restriction Congress chose not to include. Homeschoolers who otherwise meet the law’s requirements shouldn’t lose access simply because of how their state labels their school.
