Trump Administration Targets College Tax Status Over Race

The Trump administration is threatening to revoke the tax-exempt status of private nonprofit colleges it claims engage in racial discrimination. This includes schools with admissions policies, scholarships, or programs intended to support Black, Hispanic, or other minority students.

A draft rule released by the Treasury Department states that up to 18,000 private K-12 and postsecondary institutions could lose their 501(c)(3) status. The administration estimates as many as 750,000 students at these schools may qualify for scholarships allocated based on racial, ethnic, or national identity.

If finalized, the rule would take effect after May 31, 2027. Colleges losing their status would become subject to federal income tax. Donations to them would no longer be tax-deductible.

Scope and Potential Impact

This policy is the latest in a series of administration efforts to eliminate race-based programming. Federal agencies have already defunded grants for minority-serving institutions and targeted race-conscious scholarships. President Trump has repeatedly threatened to revoke nonprofit status from some colleges, specifically pushing to remove Harvard University's tax exemption in April 2025.

Treasury Secretary Scott Bessent stated the administration is "standing up for America's students by ensuring racial discrimination has no place in American education." He argued that rebranding race-based preferences as equitable or inclusive does not change their discriminatory nature.

Legal expert Shiloh Theberge, chair of a higher education law group, said Historically Black Colleges and Universities, tribal colleges, and minority-serving institutions would likely be most affected. These institutions often have more programs and donors focused on supporting students of specific races.

Legal Foundations and Challenges

The administration justifies the rule by citing two Supreme Court decisions. It leans heavily on the 1983 Bob Jones University v. United States case, where the Court upheld revoking tax status from a university that prohibited interracial relationships. Officials also cite the 2023 decision banning race-based decision-making in college admissions.

Theberge predicts legal challenges. One argument may be that the rule is arbitrary and that the IRS cannot abruptly redefine what constitutes public policy discrimination. She noted the Bob Jones case did not authorize this sort of change to the definition.

Exemptions and Opposition

The proposed rule includes specific exemptions. It would not prevent religious colleges from admitting students based on genuine religious affiliation. It also would not prohibit assistance based on income, geographic location, first-generation status, or military family status.

Higher education organizations strongly oppose the move. Kara Freeman of the National Association of College and University Business Officers said it "far exceeds agency authority." Mike Gavin 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."

Gavin added the rules are a "twist of the administration's economic vise" to force compliance with a partisan agenda. The Treasury Department will accept public comments for 60 days after the rule's formal publication, a process Theberge encouraged institutions to engage in.