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A historic federal school choice provision is now one step closer to law after the Senate narrowly passed the “Big Beautiful Bill” July 1.
The legislation creates a new federal tax credit designed to expand school choice by encouraging donations to nonprofits that help families pay for private or alternative K-12 education.
If a state opts into the program, individual taxpayers may claim up to $1,700 per year in non-refundable tax credits for donations to Scholarship Granting Organizations (SGOs). These organizations provide scholarships that can be used for tuition, transportation, school supplies, and other educational expenses.
The provision, spearheaded by Sen. Ted Cruz, R-Texas, was scaled back during budget negotiations but still marks the largest federal school choice program ever approved by Congress.
“School choice is the civil rights issue of the 21st century,” Cruz said on the Senate floor ahead of the vote. “Every child, regardless of race or wealth or ethnicity, deserves access to an excellent education.”
“This tax credit provision will unleash billions of dollars every single year for scholarships for kids to attend the K-12 school of their choice,” he added.
Under the bill, the credit is permanently written into the tax code with no expiration date or national cap on donations. Families earning up to 300% of their area’s median income are eligible to receive scholarships.
All 50 states could adopt the program immediately if the bill becomes law, but each state must choose to opt in. Currently, 35 states operate similar scholarship programs.
To qualify, SGOs must be 501(c)(3) nonprofits — not private foundations — and must award scholarships to at least 10 students attending different schools. They must dedicate at least 90% of donated funds to scholarships, keep eligible donations in separate accounts, and prohibit donors from earmarking funds for specific students.
School choice advocates acknowledged the final version of the bill is not perfect, but praised it as a crucial breakthrough.
“The mission is clear: deliver school choice to every state in America. Today’s vote marks a monumental step toward that goal for the first time in history,” Tommy Schultz, CEO of the American Federation for Children, said July 1. “Despite a shocking process that was littered with typical union lies and narratives having little to do with parliamentary objections, we cleared those hurdles and advanced toward the goal of nationwide educational freedom.”
The education measure is part of a broader package that also makes President Donald Trump’s 2017 tax cuts permanent, eliminates taxes on Social Security benefits and service workers’ tips, and expands the Child Tax Credit permanently. The bill is projected to increase average take-home pay by more than $10,000 annually for American families. It also increases funding for immigration and imposes a one-year ban on federal funding to Planned Parenthood.
