The Trump administration has proposed new federal regulations that would strip tax-exempt status from private schools, trade schools and universities that use race in admissions, scholarships or other institutional programmes, in what critics describe as the latest move in a broader campaign against diversity initiatives in American education.
The proposal, unveiled on Thursday and set to take effect in May if finalised, would add a further condition to the existing requirements schools must meet to qualify for 501(c)(3) tax-exempt status with the US Internal Revenue Service (IRS). Under the new rule, any private school, trade school or university that uses "race, colour, or national or ethnic origin" in "admissions, educational policies, scholarships and loans, athletics, and every other school-administered or school-supported programme" would lose its tax-exempt status.
Many American educational institutions have adopted policies intended to support minority and underprivileged students, framed as attempts to address historic and ongoing inequalities in higher education and wider society. The Trump administration has characterised such measures as discriminatory towards white and Asian students, continuing a pattern of policy aimed at what it has termed "wokeness" in education since returning to office.
Enforcing the proposed rule would likely require IRS audits to assess whether individual schools' policies and programmes comply. The wording of the regulation is broad enough that even indirect institutional support for groups such as a club for Black students could potentially place a school at risk of losing its exemption, according to the source material. The IRS has estimated that the rule could threaten scholarships for around 750,000 students and put the tax-exempt status of up to 18,000 schools nationwide at risk, spanning private elementary schools through to universities.
Losing tax-exempt status would carry significant financial consequences for affected institutions. The exemption, granted to private schools on the basis that education is considered a public good, can save some institutions millions of dollars annually. It also allows donors to deduct their contributions from their own tax bills, an incentive that supports fundraising efforts. The removal of this status could deepen financial pressures already affecting some colleges, several of which have responded to funding strain in recent years by cutting programmes, reducing staff numbers, or closing altogether.
The proposal follows the US Supreme Court's 2023 ruling that banned race-conscious college admissions policies, a landmark decision that has prompted ongoing disputes over how it should be interpreted and applied. In its wake, some institutions scaled back initiatives aimed at supporting minority students, including relatively modest measures such as dedicated orientation events, while Black and Latino enrolment at leading universities has declined. Other institutions have sought ways to continue supporting underrepresented students within the bounds of the ruling.
The new IRS rule includes some exceptions, permitting institutions to continue supporting underprivileged students provided they rely on what it describes as "race-neutral criteria such as family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement." However, as schools attempt to navigate this distinction, they face substantial financial risk if the administration judges their approach to have crossed into prohibited territory.
According to reporting cited in the source material, the administration is already anticipating legal action from the American Association of University Professors, a group that advocates for academic freedom and has previously challenged other Trump administration efforts targeting higher education successfully. Should the IRS proceed to audit individual institutions once the rule takes effect, affected schools would have the option to contest any attempt to revoke their tax-exempt status through the courts.
The proposal has been characterised as an effort to discourage institutions from adopting or maintaining race-conscious policies even before any formal enforcement action takes place, given that the mere prospect of an IRS audit or investigation can lead organisations to avoid measures that might attract scrutiny. This pattern has reportedly already emerged in higher education more broadly, with some colleges settling with the federal government to end investigations, or altering their policies pre-emptively in order to avoid inquiry.
The proposed regulation forms part of a wider pattern of action by the Trump administration targeting diversity-related policies across American educational institutions since it returned to office. Supporters of the measure argue it enforces a strict, colour-blind interpretation of the Supreme Court's affirmative action ruling, while opponents contend it could disproportionately harm efforts to support students from disadvantaged and underrepresented backgrounds, regardless of the specific mechanisms schools might use to do so.
The rule has not yet been finalised, and its scheduled implementation date of May leaves scope for further public consultation, legal challenge, or amendment before it takes formal effect. Given the scale of the institutions and students potentially affected, the proposal is likely to face continued scrutiny from academic bodies, civil rights groups and legal organisations as the process unfolds.
