The Treasury Department proposed a new rule Thursday that would strip private schools and colleges of their tax-exempt status if they provide targeted help to students based on their race, escalating the Trump administration's campaign to erase diversity programs aimed at Black, Hispanic and other minority students.
Who Gets Hit First
The people at the bottom of this fight are students who rely on scholarships, admissions help and campus support to get through institutions that already sort and filter them by class and race. Mike Gavin, Alliance for Higher Education president and CEO, said in a statement, "The administration's latest rules changes are its most blatant attack to keep working class Americans and people of color from accessing higher education and a better life." He added, "By claiming that efforts to increase fair opportunity for all students are discriminatory, the administration is trying to gaslight the American people into believing that up is down and black is white."
The proposed regulation says benefits in admissions, scholarships and facilities that help students because of their race "would be incompatible" with the rule. If the rule becomes final, it would kick in after May 2027. The Treasury Department and IRS estimate that up to 18,000 private schools, colleges and other education institutions could be affected.
The Tax Lever
Trump has treated tax exemption as a pressure point in his campaign against colleges he calls hotbeds of "wokeness." He threatened to cut Harvard University's benefit last year during his battle with the nation's oldest college. Harvard officials said there was no legal basis for doing so and argued it would force cuts to financial aid and crucial medical research.
The administration says it is trying to restore merit in education. Treasury Secretary Scott Bessent said in a statement that even policies no longer labeled DEI could still be targeted. "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature," he said.
Scores of universities have already shut down or rebranded their DEI offices and ended scholarships and clubs designed for minority students under pressure from the White House. That pressure has worked through the usual channels of power: threats, compliance, and the quiet reshaping of campus life to fit the demands of the executive branch.
What the Institutions Say
Higher education leaders pushed back, though their language stayed inside the system's own rules. Marjorie Hass, president of the Council of Independent Colleges, said the change would most likely hit donations, which are often earmarked for scholarships. Tim Powers, a vice president of the National Association of Independent Colleges and Universities, said the uncertainty would create challenges for schools. He said, "Our institutions are committed to complying with applicable civil rights laws and maintaining safe and supportive campuses free from discrimination. However, the proposed rule may create new compliance burdens and legal uncertainties for institutions of higher education that are already operating in line with existing nondiscrimination rules."
The Treasury Department and IRS say private schools have been exempt from many taxes for more than a century because they provide a public good, and that benefit saves many universities millions of dollars every year. Now the same state that handed out that privilege wants to use it as a disciplinary weapon.
The Justice Department has separately opened investigations into several medical schools that it accuses of favoring Black and Hispanic students in admissions. Trump officials say any such favoritism violates Title IV of the Civil Rights Act of 1964, a federal law created to fight segregation and its impact. The machinery of enforcement keeps moving, and it keeps moving downward.
A statement from IRS Chief Executive Officer Frank J. Bisignano said private schools that promote discriminatory practices will no longer be exempt from taxes. He said, "Today's proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status."
It is incredibly rare for the federal government to go after a college's tax-exempt status. Bob Jones University, a small Christian school in South Carolina, lost the benefit in the 1970s over a ban on interracial dating and marriage on campus. The Supreme Court upheld the IRS's decision to deny the school its exemption, and the school later ended the ban and regained tax-exempt status in 2017.
Laws forbid the IRS from targeting individuals and organizations for ideological reasons, and federal officials are not allowed to direct IRS investigations. To keep nonprofit status, which allows donations to be tax-deductible, organizations must follow IRS rules on lobbying, political campaign activity and annual reporting requirements, plus other obligations. The administration's proposal sits right in that legal machinery, using the language of neutrality while pushing hard on who gets to keep the money and who gets squeezed out.
Preston Cooper, a senior fellow who studies higher education policy at the conservative American Enterprise Institute, said both political parties have long viewed nonprofit status as requiring "a really high bar to mess with." He said that a decade ago, before Trump first became president, it was conservative colleges whose leaders were worrying about losing nonprofit status, and religious leaders raised concerns that Christian schools could someday lose accreditation or tax-exempt status over their codes of conduct barring same-sex relationships. He added, "If the Trump administration were to use this regulation to start revoking tax-exempt status from colleges right and left, I think that would represent a really serious escalation and would be potentially something the Democrats would want to retaliate against when they return to power." He said, "If the regulation ends up being merely a warning to schools, that's a different conversation."
The White House is calling it merit. The colleges are calling it a burden. The students who lose scholarships, clubs and support services are the ones who'll pay the bill.