This year’s first day of school looked like every other one. But for millions of families next year could look different thanks to a federal tax credit for K-12 scholarships available for the first time in American history.
Back to school this year is the same routine it always is, new folders, new schedules, a little nervous energy at the bus stop.
What’s different is what’s coming in 2027: the Education Freedom Tax Credit (EFTC), the first federal school choice tax credit in American history.
But where exactly does the EFTC stack compared to other tax credit scholarships? And, what does it mean for next school year? Let’s take a look.
What Is a Tax Credit Scholarship?
A tax credit scholarship is a scholarship funded by private donations that earn the donor a tax credit. No government check gets written to a family, and no public funds get deposited into an account. Instead, an individual or business donates to a nonprofit Scholarship Granting Organization (SGO), and that donation earns the donor a tax credit, worth a dollar-for-dollar reduction in what they owe. The SGO then uses the donation to fund a scholarship for a K-12 student. The donation comes first, and the tax credit follows only afterward, when the donor files.
For definitions of every acronym in this space, ECCA, EFTC, FSTC, SGO and more, see AFC’s school choice tax credit terms glossary.
How a Tax Credit Scholarship Differs From a Voucher or an ESA
All three models exist to help a family choose a school outside their assigned public school, but the money moves in different ways, and it’s worth knowing which one you’re actually talking about.
A school voucher is a state-run benefit that routes government funds toward tuition at a school a family selects. It’s public money, spent by the state, on a family’s behalf, usually earmarked for tuition specifically.
An Education Savings Account (ESA) is broader. It’s a state-administered account that lets parents direct public funds toward their own child’s education expenses, including tuition, curriculum, tutoring, therapies. Donor-side credits like the EFTC and parent-side accounts like ESAs are separate tools.
A tax credit scholarship is different from both. This is a scholarship funded by donations that earn the donor a tax credit. States have run tax credit scholarship initiatives for decades and the EFTC brings the model to the federal level for the first time.
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.
Where the Education Freedom Tax Credit Fits In
The EFTC is the newest chapter, and the first one written at the federal level. Sometimes called the Federal Scholarship Tax Credit (FSTC) in policy research and news coverage, it works exactly like the state programs that came before it, just nationally rather than state by state.
Starting in 2027, the EFTC becomes available to donors nationwide. A donor’s own state doesn’t have to have opted-in to take advantage of the credit. What matters is giving to a qualified SGO in a state that has opted in to participate, and a donor in one state can fund a scholarship for a student in another this way. Scholarships funded through the EFTC are broadly available. Approximately 90% of American students are eligible. Here’s exactly how the donation-first mechanism works.
How the Donation-First Mechanism Works
The order matters, and it’s the same order every tax credit scholarship program follows. A donor contributes to a qualified SGO first. The SGO reviews who needs a scholarship and awards one to a qualifying student, and that scholarship goes to work covering real education costs, tuition, tutoring, books and more. Only after that happens does the donor see anything back. When they file their federal taxes the following year, they claim the credit, up to $1,700, dollar for dollar. Not a deduction. A credit, worth exactly what it says, regardless of the donor’s tax bracket.
The donation comes first. The scholarship gets funded right away. The tax credit comes back to the donor later. For the complete walkthrough, see the full how the EFTC works explainer, and for what a scholarship can actually pay for, tuition, tutoring, curriculum and more, see what scholarship funds can be used for.
What This Model Already Changes for Real Families
Scholarships funded this way already change what a school year looks like for families lucky enough to have access to one. Clay’s family found that out through a state program before the EFTC ever existed. His mom, a former teacher herself, spent years being told his goals “weren’t appropriate for second grade” in a classroom that wasn’t built for how he learns. A scholarship gave her another option. Today, Clay is an honor roll student and captain of his varsity basketball team. Read Clay’s full story.
Whether a family ever gets that kind of shot shouldn’t come down to which state passed the right program. That’s the gap the EFTC is built to close: instead of relying on their own state to act, a donor anywhere in the country can now fund a scholarship through a participating SGO, extending a model that’s worked at the state level for 25 years to a federal scale.
Getting Ready While There’s Still Time
A tax credit scholarship isn’t a new idea, and it isn’t a voucher or an ESA, even though all three aim at the same goal. It’s private giving, incentivized by a tax credit, funding scholarships through a nonprofit SGO instead of a state agency. States have proven the model works for 25 years.
Starting in 2027, the Education Freedom Tax Credit brings that same model to the federal level for the first time: any donor, anywhere in the country, can fund a scholarship through a participating SGO instead of being limited to what their own state has passed.
Sign up for updates at the AFC Scholarship Fund resource center so you’re ready when donations open in 2027.
A scholarship funded by private donations that earn the donor a tax credit. A donor gives to a nonprofit Scholarship Granting Organization (SGO), the donor's tax bill goes down dollar for dollar, and the SGO uses the donation to fund a K-12 scholarship. No public funds are spent directly.
A voucher and an ESA are both direct public spending: the state funds tuition or a broader set of education expenses on a family's behalf. A tax credit scholarship involves no public spending at all. It's private donations, incentivized by a tax credit, funding scholarships through a nonprofit SGO instead of a state agency.
The federal scholarship tax credit, more formally the Education Freedom Tax Credit (EFTC), is the first tax credit scholarship program written at the federal level. Starting in 2027, it offers donors a dollar-for-dollar federal tax credit of up to $1,700 for gifts to a qualified SGO.
No. A voucher is public money the state spends directly on a family's behalf. The EFTC involves no public spending. It's a federal tax credit for donors who give to a Scholarship Granting Organization, which then funds a student's scholarship.
Scholarships are broadly available. Approximately 90% of American students are eligible to receive one.
No. You can sign up now to be notified when donations open and see an estimate of what your household's credit could be worth in the meantime.
