IN THE NEWS: The Education Freedom Tax Credit (EFTC) starts in 2027. Sen. Ted Cruz recently walked parents through how it works, and what it could mean for Texas school choice.
THE BIG THING: Starting January 1, 2027, taxpayers can contribute up to $1,700 to a qualified Scholarship Granting Organization and receive a dollar-for-dollar federal tax credit, not a deduction.
BY THE NUMBERS:
- $1,700: maximum contribution eligible for the credit
- $1,700: maximum federal tax credit
- 51.7 million: K-12 students nationwide who meet the scholarship eligibility criteria
- 5.5 million: eligible students in Texas, representing 92% of K-12 students in the state
THE BOTTOM LINE: The EFTC creates a new source of funding for K-12 scholarships. How much it ultimately generates will depend on how much taxpayers contribute.
Ted Cruz on How the Education Freedom Tax Credit Works
“One thing y’all should know is that next year, a whole lot more resources are going to be available,” Cruz told parents at a Houston school.
He was talking about a provision he wrote into the 2025 tax law that creates a new federal tax credit for contributions to Scholarship Granting Organizations.
Here’s how he explained it:
“Every taxpayer in America can give up to $1,700 to a scholarship granting organization. And if you do that, you get a dollar for dollar tax credit. Not a deduction, a credit.”
Cruz’s example:
“If you write a check for $1,700 to a scholarship granting organization, you owe $1,700 less to Uncle Sam. So your taxes just go down.”
The contribution goes to an SGO, which uses the money to fund K-12 scholarships for eligible students. (AFC Scholarship Fund has a full breakdown of tax credits vs. tax deductions).
Be the First to Know
Get notified when the Education Freedom Tax Credit launches so you don’t miss the opportunity to support K–12 students while benefiting from a federal tax credit.
What Is a Scholarship Granting Organization?
A Scholarship Granting Organization, or SGO, is a nonprofit that receives contributions eligible for the Education Freedom Tax Credit and uses them to fund scholarships for eligible K-12 students.
The SGO is the bridge between the donor and the scholarship: you contribute to an SGO, the SGO turns those contributions into scholarships, and eligible families use those scholarships for qualified education expenses in states that have opted in.
AFC Scholarship Fund is an SGO, operating multiple funds that direct EFTC-eligible contributions to different groups of eligible students:
- The American Promise Scholarship Fund: the general fund, directing scholarships to eligible students in any state or school type, with a focus on low-income families.
- The Special Education Scholarship Fund: supports students with disabilities or documented learning differences, covering tuition, therapies, and specialized instruction.
- The American Heroes Scholarship Fund: supports military-connected K-12 students, including active-duty, Guard and Reserve, veterans, and Gold Star families.
- The Skilled Trades Scholarship Fund: supports K-12 students pursuing career and technical training, such as electrical, welding, automotive, and construction programs.
- The Catholic Schools Scholarship Fund: supports students at participating Catholic elementary, middle, and high schools.
- The Christian Schools Scholarship Fund: supports students at participating Christian schools across denominations.
- The Jewish Schools Scholarship Fund: supports students at participating Jewish day schools and yeshivas.
Donors can direct a gift to a specific fund, though federal law prohibits earmarking a donation for a specific student. Each SGO makes its own award decisions independently.
Cruz on What the EFTC Could Mean for School Choice
Individual contributions can add up quickly.
“What that’s going to do starting next year is unleash billions of dollars … and tens of billions of dollars over time in scholarships for kids in K-12 education,” he said.
Research from AFC’s Patrick Graff, Ph.D. puts the potential pool of scholarship recipients at 51.7 million K-12 students nationwide, including nearly 5.5 million in Texas.
Here’s the math behind that: a taxpayer can turn a $1,700 contribution into $1,700 in scholarship funding through the federal tax credit, dollar for dollar. Millions of individual contributions could add up to billions of dollars for K-12 scholarships. And that’s just the beginning. Taxpayers can give more than $1,700; the $1,700 limit applies to the federal tax credit, not the contribution itself.
Asked about the long-term picture in Texas, Cruz said:
“A decade from now, we’ll literally have millions of kids in Texas who were struggling in schools that were not meeting their needs who were able to get a scholarship and find a place where they are able to get an education,” he said.
