Trump Administration Targets Private College Tax Status

The Trump administration has proposed a new rule to remove the tax-exempt status of private schools and colleges that provide targeted help to students based on race. The Treasury Department introduced the regulation on Thursday, with an effective date after May 2027 if finalized.

This action marks a significant escalation in the White House's campaign to eliminate diversity, equity, and inclusion (DEI) programs aimed at Black, Hispanic, and other minority students. Trump officials argue that such race-based benefits in admissions, scholarships, and facilities are discriminatory, using Civil Rights-era laws to unwind policies they say disadvantage white and Asian American students.

Higher Education Leaders Condemn Proposal

Higher education leaders have sharply criticized the administration's move. Mike Gavin, president and CEO of the Alliance for Higher Education, called it the administration's "most blatant attack to keep working class Americans and people of color from accessing higher education and a better life." He accused the administration of trying to "gaslight the American people" by labeling efforts for fair opportunity as discriminatory.

The Treasury Department and IRS estimate up to 18,000 private schools, colleges, and other educational institutions could be affected. Many universities have already shut down or rebranded DEI offices and ended minority-focused scholarships under White House pressure. Treasury Secretary Scott Bessent stated that rebranding such programs does not change their nature, saying, "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature."

The Stakes of Tax-Exempt Status

America's private universities have enjoyed tax-exempt status for over a century, a benefit that saves them millions annually, based on their provision of a public good. President Trump has previously threatened this status for institutions like Harvard University, describing colleges as hotbeds of "wokeness." Harvard officials argued there was no legal basis for such a move and warned it would force cuts to financial aid and medical research.

Revoking a college's tax-exempt status is exceptionally rare. A notable precedent occurred in the 1970s when Bob Jones University lost its status due to a ban on interracial dating and marriage. The Supreme Court upheld the IRS's decision. The school later ended the ban and regained its tax-exempt status in 2017.

IRS Chief Executive Officer Frank J. Bisignano said the new rules put institutions on notice. "Today's proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status," he stated.

Potential Impacts and Legal Uncertainties

The proposal's uncertainty creates challenges for schools, according to Tim Powers, a vice president of the National Association of Independent Colleges and Universities. He said that while institutions are committed to compliance, the rule "may create new compliance burdens and legal uncertainties for institutions of higher education that are already operating in line with existing nondiscrimination rules."

Marjorie Hass, president of the Council of Independent Colleges, suggested the change would likely impact donations, which are often earmarked for scholarships. Separately, the Justice Department has opened investigations into several medical schools accused of favoring Black and Hispanic students in admissions, which Trump officials say violates Title IV of the Civil Rights Act of 1964.

Preston Cooper, a senior fellow at the American Enterprise Institute, noted that both political parties have historically viewed nonprofit status as having "a really high bar to mess with." He suggested the outcome of this push will shape future political responses, potentially triggering retaliation from Democrats if the regulation leads to widespread revocation of tax-exempt status. The administration describes the proposal as a move toward restoring merit in the nation's education systems.