The Trump administration has expanded its campaign against diversity initiatives in education by tying tax law to race-conscious student programs. On September 3, 2026, the Treasury Department and Internal Revenue Service proposed a rule that would allow private schools and colleges to lose tax-exempt status if they provide admissions, scholarships or other benefits based on race, citing the 1983 Supreme Court case Bob Jones University v. United States as a key legal basis.
Treasury and IRS move would reach thousands of private schools
The Treasury Department and IRS released the proposed regulation on September 3, saying private schools that engage in racial discrimination would no longer qualify for federal tax exemption under Section 501(c)(3), according to the agencies’ official announcement. Treasury Secretary Scott Bessent said the rule is intended to carry out President Donald Trump’s orders on what the administration calls merit-based opportunity.
Federal officials said the proposal would apply to admissions, educational policies, scholarships and loans, athletics, and other school-administered or school-supported programs. The IRS and Treasury estimated that as many as 18,000 private schools, colleges and other educational institutions could be affected if the regulation is finalized. The proposal is not yet in effect and would take hold after May 2027 if adopted in final form, according to reporting by the Associated Press.
The administration’s legal argument relies in part on Bob Jones University v. United States, the 1983 Supreme Court decision that upheld the denial of tax-exempt status to a South Carolina university with racially discriminatory policies. In that case, the court concluded that an educational institution can lose tax benefits if its practices violate a fundamental national public policy against racial discrimination.
Because the proposed rule applies to private nonprofit educational institutions across the country, its potential effect is national rather than limited to one state or city. What is confirmed is that the regulation would cover both private K-12 schools and private colleges if federal officials determine their programs or policies discriminate on the basis of race, color, or national or ethnic origin.
What is not yet known is which campuses, if any, would ultimately be found out of compliance. The administration has not released a comprehensive list of schools that could face scrutiny under the proposed rule. It also remains unclear how federal regulators would evaluate programs designed to support historically underrepresented students if those programs are open more broadly but still focus on racial equity goals.
Recent federal actions show how the administration has been building that broader effort. Reuters reported in August that the Justice Department opened a compliance investigation into the College of William & Mary over scholarships and student benefits it said favored minority students. Reuters also reported that the department had targeted additional universities, including Duke Law, over admissions and diversity-related practices.
The new proposal comes after the Supreme Court’s 2023 decision ending race-conscious admissions at Harvard and the University of North Carolina, a ruling the Trump administration has used as support for a wider rollback of diversity programs. Administration officials have argued that policies intended to help Black, Hispanic and other minority students can unlawfully disadvantage white and Asian American students.
The 1983 case cited by the administration is notable because it involved overt racial discrimination, not modern diversity programming. Even so, the administration said in its rulemaking notice that Bob Jones and related case law support a uniform nondiscrimination standard for tax-exempt schools. Higher education groups and faculty advocates have said the proposal goes much further than prior court rulings and could invite legal challenges if finalized.
For students and families, the immediate effect is limited because the regulation is still proposed, not final. But schools that maintain race-specific scholarships, mentorship programs or other targeted benefits may face new legal and financial pressure as the rulemaking process moves forward, with any final change unlikely to take effect before May 2027.