What Private and Faith-Based Schools Need to Know About the Education Freedom Tax Credit

Private and faith-based school leaders are hearing about the Education Freedom Tax Credit (EFTC) from parents, board members, and each other, and the practical question for a school is simple: what does this actually mean for us, and what should we be doing now? The short answer is that the credit changes very little about how a school operates day to day, and quite a lot about who might be sitting in its classrooms starting in 2027. The details in between are where school leaders tend to get tripped up, and where a little preparation now saves a scramble later.

How the money actually reaches a classroom

The credit doesn’t pay schools directly. A donor gives cash to a Scholarship Granting Organization (SGO) and claims a federal tax credit of up to $1,700. The SGO pools those donations and awards scholarships to income-eligible K-12 students under required federal priority rules. A family applies to the SGO, is verified, and receives an award. That scholarship is typically paid to the school or provider on the student’s behalf for qualified education expenses, which squarely includes tuition. Picture a 150-student parish elementary school in a state that opted in early. The school itself never touches a donor’s tax return, never issues a receipt for the credit, and never applies to Treasury for anything. What it does see, eventually, is a payment from an SGO covering part or all of a newly admitted student’s tuition bill, arriving on a schedule the school and the SGO work out together, usually tied to the school’s own billing cycle.

Your school is a destination for scholarship dollars, not a credit claimant, and, in most cases, not an SGO itself. This trips up a lot of administrators, who hear “scholarship program” and assume their business office needs to build something from scratch. An SGO must be a separate 501(c)(3) public charity that serves at least 10 students who don’t all attend the same school, spends at least 90% of its income on scholarships, and cannot earmark gifts for specific students. A single school cannot satisfy that multi-school requirement on its own, no matter how large its enrollment. The workable path for nearly every school is to partner with one or more established SGOs already serving your area, faith tradition, or sector, rather than standing up a parallel compliance operation with its own audits, income verification, and federal reporting obligations.

What families need to qualify

A student needs household income at or below the program’s threshold, based on the prior calendar year, and needs to be eligible to enroll in a public K-12 school, the standard federal test. The SGO verifies income; families apply to the SGO, not to the school, for the scholarship itself. One detail worth building into a school’s own enrollment planning: federal law gives award priority to students who received a scholarship the previous year, then to their siblings, ahead of new applicants. Concretely, a kindergartner enrolling next year whose older sibling already holds an EFTC-funded scholarship at your school sits ahead of an unrelated new applicant family in that same award cycle. For schools, that means these scholarships are especially well suited to supporting continuity of enrollment across grades and across siblings within a family, not just a one-time recruitment push in year one.

The operational side: what actually changes in your front office. Most of a school’s existing tuition and billing process stays the same; what’s added is a second payer showing up alongside families who pay directly. Practically, that means confirming with each partner SGO how and when scholarship payments arrive, whether a single lump sum per term or installments tied to the school’s own billing calendar, and what documentation the SGO needs from the school to release funds, typically enrollment confirmation and a tuition invoice in the student’s name. Schools that already work with any third-party tuition assistance or state-level scholarship program will recognize this pattern; for schools that don’t, it’s worth assigning one staff member as the point of contact for SGO partners before the first scholarship student arrives, rather than routing it ad hoc through admissions, the business office, and the front desk in whatever order a question happens to land.

Common misconceptions worth clearing up early

A few assumptions surface repeatedly among school leaders encountering this credit for the first time, and each one is worth correcting before it shapes a school’s planning. The first is that the money comes from the government; it doesn’t, it’s a donor’s own charitable gift, credited back to that donor at tax time. The second is that a school can simply start its own scholarship fund; as described above, the federal multi-school and 90/10 requirements make that impractical for a single institution, which is why partnering with an established SGO is the realistic path for nearly every school, including smaller organizations weighing whether to build one from scratch. The third is that religious schools are treated differently or excluded outright; they aren’t, for reasons covered below. And the fourth is that partnering with an SGO guarantees funding for every interested family; it doesn’t. Awards depend on a family’s income eligibility, the federal priority order, and how much a given SGO has actually raised and has available to award in a given year, which is exactly why understanding an SGO partner’s typical award volume matters as much as understanding its application calendar.

How to prepare now

Confirm your state has opted into the program; without that, no scholarships flow locally, regardless of a school’s own readiness. Identify SGO partners serving your region or mission. AFC Scholarship Fund is one option already active across multiple states. Understand each one’s application calendar and award criteria. Help eligible families understand the income threshold; many families don’t realize how far it reaches into the middle class, and assume, incorrectly, that they wouldn’t qualify. Align your billing and enrollment processes to receive scholarship payments on a student’s behalf, and coordinate verification documents with your SGO partners. None of this requires a fully built system by the first day of 2027; it requires knowing, well before then, which SGOs you’ll be working with and how their process fits into your existing calendar.

A note for faith-based schools

Because the credit runs through private charitable donations rather than government appropriations, it has generally been understood to reach religious schools the way any charitable gift does. This isn’t a novel legal theory being tested for the first time; state-level scholarship tax credit programs have operated on the same private-donation structure for decades, including at religious schools, without that structure itself being the point of legal contention. What does vary is state-level detail: some states are separately debating additional conditions on SGOs operating within their borders, and those conditions, where they exist, apply to the SGO’s own compliance requirements rather than to the federal credit itself. That is a state-level variable worth watching as your state’s participation details firm up, not something the federal credit imposes on a school directly.

Building a plan that spans more than one enrollment cycle

Because award priority favors returning students and their siblings, the schools that benefit most from this credit over time are likely to be the ones that treat it as a multi-year relationship with a small number of SGO partners rather than a one-time announcement to families. That means tracking which enrolled families already hold scholarships, communicating early with SGO partners about anticipated sibling enrollments, and revisiting income-eligibility outreach each year rather than only during an initial launch push. The credit itself doesn’t change what a school teaches or how it admits students. It changes who can afford to walk through the door, and a school that plans for that a year ahead of time will be in a stronger position than one still sorting out its SGO partnerships after the program has already launched.