The Treasury Department proposed a new regulation Thursday that would strip private schools and colleges of their tax-exempt status if they provide targeted help to students based on race. If finalized, the rule would take effect after May 2027.
The rule specifically states that race-based benefits in admissions, scholarships and facilities 'would be incompatible' with maintaining tax-exempt status. Treasury Secretary Scott Bessent said in a statement announcing the proposal that rebranding does not change the underlying practice: 'Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature.'
The Treasury Department and the IRS estimate that up to 18,000 private schools, colleges and other education institutions could be affected. America's private universities have been exempt from many taxes for more than a century because they are deemed to provide a public good — a benefit that saves many institutions millions of dollars every year.
The move is the latest step in the administration's push to unwind diversity, equity and inclusion policies at colleges, using Civil Rights-era law. Trump officials argue such policies discriminate against white and Asian American students. Scores of universities have already shut down or rebranded DEI offices and ended scholarships and clubs designed for minority students under White House pressure.
There is a rare precedent for this kind of federal action. Bob Jones University, a small Christian school in South Carolina, lost its tax-exempt status in the 1970s over a ban on interracial dating and marriage on campus, and the Supreme Court upheld the IRS's decision. The school ended the ban and regained its exemption in 2017.
Trump previously threatened to cut Harvard University's tax-exempt benefit during a dispute with the school last year; Harvard argued there was no legal basis for the move and that it would force cuts to financial aid and medical research.
Critics of the proposal include Mike Gavin, president and CEO of the Alliance for Higher Education, who called it, in a statement, 'the administration's most blatant attack to keep working class Americans and people of color from accessing higher education and a better life.' Marjorie Hass, president of the Council of Independent Colleges, said the change would likely affect donations often earmarked for scholarships. Tim Powers, a vice president of the National Association of Independent Colleges and Universities, said the rule 'may create new compliance burdens and legal uncertainties' even for schools already following existing nondiscrimination rules.
Separately, the Justice Department has opened investigations into several medical schools it accuses of favoring Black and Hispanic students in admissions, citing Title IV of the Civil Rights Act of 1964.
The numbers come first: 18,000 institutions, more than a century of exemption, one prior case of enforcement. For decades, tax-exempt status functioned as an unquestioned entitlement for universities that built entire admissions and scholarship regimes around race rather than merit. Treasury's proposal simply asks those institutions to follow the same nondiscrimination law that binds everyone else — and to justify a public subsidy with genuinely public, race-neutral behavior.
The complaints from university trade groups about 'compliance burdens' ring familiar: institutions that spent years building bureaucracies around DEI now object to the cost of dismantling them. Capital rewards clear rules, and a tax code that stops subsidizing race-based preference is a tax code that finally treats every applicant the same.
