As I’ve written recently, the federal scholarship tax credit (FSTC) is coming soon – officially starting in January 2027, though families may have access to scholarships a few months later.

The promise of the FSTC to significantly expand education choice comes by giving parents yet another much-needed route to a scholarship for an education that meets their child’s needs.

Over time, it’s becoming clearer how education choice programs can quite literally change students’ lives, as we have seen in a growing number of personal accounts of families using state-level education choice programs. (You can read success stories about Utah’s education program helping a student overcome fears speaking with a speech impediment here, another with finding resources to meet the challenges of learning with autism and ADHD here, and another continuing at the right school while battling cancer here.)

So, the importance of getting this next education choice opportunity right – which can possibly impact all 50 states – cannot be overstated.

I’ve submitted another public comment on this policy, this time on the proposed rule released last month. Public comment is open until Dec. 1, 2026. We invite others with feedback to give public comment as well.

Sutherland Institute’s public comment on the Federal Scholarship Tax Credit

Sutherland Institute supports the federal scholarship tax credit as a means to increase education choice for millions of students nationwide, a policy which has been called the “largest expansion of school choice in history” by U.S. Secretary of Education Linda McMahon.

This new tax credit policy would best serve its purpose if students educated through homeschools and microschools could meaningfully access scholarships nationwide, regardless of how states classify these educational arrangements. We hope to see clarification in the forthcoming guidance that ensures this can happen.

Currently, the rule may inadvertently prevent many of these students from benefiting from the program by incorporating Internal Revenue Code Section 530, the provision governing Coverdell education savings accounts. Under this definition, whether an educational arrangement qualifies as a school depends on state law, specifically how individual states define “school.”

Although the proposed rule recognizes that students need not be enrolled in or attend a school to qualify as eligible students, it also clarifies that scholarship funds may be used only for expenses connected to enrollment or attendance at a qualifying school. Consequently, a homeschooled student may meet all the requirements to receive a scholarship but still be unable to use scholarship funds for legitimate educational expenses because their state does not classify homeschooling as a school.

One state-by-state analysis estimates that homeschool students would likely face barriers in about half of states. If true, this departs from the approach suggested by earlier proposals of the originating legislation (Educational Choice for Children Act), which were designed to allow scholarships to support homeschool students. Furthermore, the current rule language does not include an express prohibition on scholarships going to homeschool or microschool students. Yet this may be the case anyway.

In many states, homeschool students may be eligible but unable to use the scholarship for qualifying expenses only because of state definitions, which may have been developed for other state-related policy reasons. It uses the state definition, even if those states would prefer these students to be eligible for these new scholarships but don’t want to meddle with state legislative definitional changes.

Without clarification, the federal government may pressure states to unwisely revisit their definitions of “school,” which could create other issues for innovations and alternatives like microschools and homeschools.

The incorporation of Section 530 creates uncertainty that the Treasury should address. We hope the forthcoming Treasury guidance can address this issue and ensure that homeschool and microschool students can meaningfully use the scholarships.