Victory for Families: A Historic Breakthrough for School Choice Becomes Federal Law
On July 4, 2025, President Trump signed into law what may be the most significant federal school choice measure in American history.
This new law, which includes Section 25F of the Internal Revenue Code, creates a permanent federal tax credit for donations to Scholarship Granting Organizations (SGOs). And it is nothing short of a game-changer. As we’ve written in earlier updates (here and here), the final legislation reflects hard-fought compromises but still delivers on the central promise: empowering families to choose the educational setting that works best for their child.
Let’s walk through what made it into the final version and why it matters for families, taxpayers, and the future of education freedom.
Key Wins for Families and Freedom
1. A 100% Federal Tax Credit for Donations to SGOs
Donors to qualified SGOs can now claim a dollar-for-dollar, non-refundable federal income tax credit up to $1,700 annually. Even better, if a donor doesn’t use the full amount in a given year, they can carry it forward for up to five years. This is the first time the federal tax code has directly incentivized private donations for K-12 education choice at this scale.
2. No Federal Cap on the Program
Unlike some state-level programs that limit total credits available, this federal credit has no aggregate cap. That means every eligible donation counts, and families won’t be left waiting for a first-come, first-served allocation window to open and close.
3. Broad Eligibility and Flexibility
Scholarships can be awarded to students from families earning up to 300% of median income in their region which expands access to middle-class families, not just those in poverty. SGOs also have wide discretion over how scholarships are structured, who qualifies, and which schools participate (as long as more than one school is represented).
4. Permanent Law
Section 25F is not a temporary pilot program; it’s permanent. This means long-term stability and the ability to build and sustain scholarship ecosystems without the constant threat of sunset provisions or shifting political winds.
5. Robust Use of Funds
Scholarships can be used for tuition at private or religious schools, tutoring, special needs services, books, software, supplies, and other education-related expenses already covered under federal Coverdell savings accounts. This gives families flexibility to craft a truly customized education experience. As with any major legislation, the final law includes some limitations and oversight provisions:
Guardrails and Compromises
$1,700 Annual Cap Per Donor: While the credit is generous, it is capped per donor to keep the cost to the federal budget predictable. Still, for many families and donors, this is a strong incentive to support choice.
90% Scholarship Requirement: SGOs must use 90% of all donations on scholarships within the same year. This ensures that the funds are truly serving students, not being banked or absorbed by overhead.
State “Opt-In” Mechanism: States don’t have to participate. Each governor (or designee) must submit a list of qualified SGOs to the U.S. Treasury in order for those SGOs to receive tax-credited donations. This opt-in provision allows states to control how the program operates within their borders—so advocates will need to be engaged at the state level to ensure access.
No Federal Mandates for IEP Students: The bill wisely avoids imposing admissions mandates on private schools. Instead, SGOs are empowered to grant larger scholarships to meet the unique needs of students with special needs.
What This Means for South Carolina
Palmetto Promise Institute has long championed education freedom in our state. With this new law, South Carolina families could benefit even more if our state opts in. That means naming qualified SGOs and allowing them to begin accepting federally credited donations to award scholarships to South Carolina students.
Stay tuned as we share more about how you can be part of making this federal breakthrough a real and lasting success for students right here in South Carolina.
Because every child deserves an education that fits.
