The Trump administration introduced a new regulation this Thursday that would eliminate tax-exempt status for private schools and colleges providing targeted assistance to students based on race. If finalized, the rule would take effect after May 2027 and explicitly states that race-based preferences in admissions, scholarships, and facilities are incompatible with federal tax code requirements.
This move represents a significant escalation in the White House’s campaign to dismantle diversity, equity, and inclusion (DEI) initiatives. Treasury Secretary Scott Bessent emphasized that rebranding race-based preferences under terms like “equitable” or “inclusive” would not shield institutions from the new policy.
According to estimates from the Treasury Department and the IRS, approximately 18,000 private educational institutions could be impacted by the proposal. For over a century, private universities have enjoyed tax exemptions because they are considered to provide a public good, saving many institutions millions of dollars annually.
Higher education leaders have strongly condemned the plan. Mike Gavin, president and CEO of the Alliance for Higher Education, called it a “blatant attack” aimed at preventing working-class Americans and people of color from accessing higher education. He argued that the administration is attempting to mislead the public by framing efforts to increase opportunity as discriminatory.
The proposal also raises legal questions. Federal law prohibits the IRS from targeting organizations for ideological reasons. While the Justice Department has opened separate investigations into medical schools accused of favoring Black and Hispanic applicants, the IRS stated that institutions engaging in racial discrimination should expect to lose their tax-exempt status.
Historically, revoking tax-exempt status has been rare. In the 1970s, Bob Jones University lost its exemption due to a ban on interracial dating and marriage, a decision upheld by the Supreme Court. The university later ended the ban and regained its status in 2017.
Preston Cooper, a senior fellow at the American Enterprise Institute, noted that both political parties have traditionally viewed nonprofit status as requiring a “really high bar” to interfere with. He suggested that how Democrats respond to this proposal may depend on whether the regulation is used broadly to revoke exemptions or serves merely as a warning.
Schools are already feeling the pressure, with many having shut down or rebranded DEI offices under previous administration pressure. Tim Powers of the National Association of Independent Colleges and Universities warned that the new rule creates compliance burdens and legal uncertainties for institutions already operating within nondiscrimination rules.
This feels like a direct political attack on higher education rather than a genuine legal interpretation.
How does the IRS enforce this? The legal challenges will be massive and drag on for years.
If they can revoke exemptions over DEI, what stops future administrations from targeting other nonprofit programs?
Finally, someone holding institutions accountable for prioritizing race over merit in admissions and scholarships.
Rebranding offices won’t fix this. Colleges need clear guidance, not just vague threats about tax status.