U.S. Moves to Strip Tax Exemptions from Colleges Favoring Minorities and Cut Funds to Israel Boycott Supporters

The Trump administration is preparing to use tax exemptions as leverage against private schools that favor Black students and other minority groups in admissions and financial aid. The Treasury Department and Internal Revenue Service said they would end the federal tax-exempt status of private schools that engage in racial discrimination, framing the policy as an effort to restore “opportunity based on merit.”

The policy would apply to schools that consider students’ race, color, national origin or ethnicity in admissions, scholarships or student loans. It would still allow race-neutral criteria such as household income, place of residence, personal hardship and academic achievement. Support for first-generation college students and military families would also remain permitted. Religious schools could continue to consider an applicant’s religion for admissions purposes.

The financial stakes are high for private institutions. They benefit from corporate tax exemptions, while donations to them receive tax deductions. Treasury estimates that about 18,000 private educational institutions could be affected. The policy is set to begin with fiscal year 2027-28, starting next October.

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Our members are not shaken by this issue. We have been through situations like this many times, and the only new element this time is that tax-exempt benefits have become the weapon.

Schools could challenge the loss of their status in federal court, but financial effects could arrive earlier. Bond issues, private-equity investments and intellectual-property agreements often assume that tax-exempt status will continue. Lloyd Mayer, a tax law professor at the University of Notre Dame, said the rules’ limited exceptions and severe penalties could lead schools to review and change their activities before the policy takes effect.

Pressure on universities is also growing over Israel. The House passed the Republican-led Protecting Economic and Academic Freedom Act by 237 votes to 169. The bill would require colleges receiving federal student aid to avoid participating in an Israel boycott. It would also require institutions receiving federal funds for international research or language programs to certify annually that they do not restrict participation in Israel-related programs. The final list of affected universities is unclear, while the Guardian described the measure as political legislation aimed at exposing divisions among Democrats before the November midterm elections.

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The rules allow no exceptions and the penalties are very severe, so schools are likely to review and change their activities even before the rules take effect.