Trump administration targets tax exemptions for colleges with DEI programs

The Trump administration moved Thursday to strip tax-exempt status from private colleges and universities that offer race-conscious aid, scholarships, or admissions policies—a sweeping escalation in its campaign to dismantle diversity programs across American higher education. The Treasury Department's proposed regulation, set to take effect after May 2027, would eliminate the tax benefits that have shielded private schools from taxation for more than a century, a status that saves many institutions millions of dollars annually. The rule targets any program or policy that provides assistance to students based on race, explicitly naming admissions preferences, scholarships, and facility access as incompatible with tax-exempt status.

The scale of the proposal is staggering. The Treasury Department and IRS estimate that up to 18,000 private schools, colleges, and other educational institutions could lose their exemptions if the rule becomes final. Already, hundreds of universities have preemptively shut down or rebranded their diversity, equity, and inclusion offices and eliminated scholarships and student organizations designed for minority students, responding to pressure from the White House. Treasury Secretary Scott Bessent signaled that schools attempting to circumvent the rule by reframing race-conscious policies under different language would still face scrutiny. "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature," he said in announcing the proposal.

The administration frames the move as restoring merit to American education, but higher education leaders see it as a direct assault on access. Mike Gavin, president and CEO of the Alliance for Higher Education, called it "the administration's most blatant attack to keep working class Americans and people of color from accessing higher education and a better life." He accused the White House of attempting to gaslight the public by claiming that efforts to expand opportunity for all students are themselves discriminatory. Marjorie Hass, president of the Council of Independent Colleges, warned that the uncertainty surrounding the proposal would likely impact donations, which are frequently earmarked for scholarships. Tim Powers, a vice president of the National Association of Independent Colleges and Universities, noted that the rule would create new compliance burdens and legal uncertainties for schools already operating within existing nondiscrimination laws.

The Trump administration has wielded tax-exempt status as a pressure point throughout its campaign against what it describes as "woke" colleges. Last year, the president threatened to revoke Harvard University's exemption during a dispute with the nation's oldest institution. Harvard responded that there was no legal basis for such action and warned it would force cuts to financial aid and medical research. The administration's invocation of Civil Rights-era law to justify the new rule—arguing that race-conscious aid discriminates against white and Asian American students—represents a novel interpretation of statutes originally designed to combat segregation and its lasting effects.

Federal action against a college's tax-exempt status is extraordinarily rare, but there is one significant precedent. Bob Jones University, a small Christian school in South Carolina, lost its exemption in the 1970s because of a campus ban on interracial dating and marriage. The Supreme Court upheld the IRS's decision, and the school eventually regained its status in 2017 after ending the ban. That case established that the federal government can condition tax exemptions on compliance with public policy, though the legal terrain around the current proposal remains contested. Laws explicitly forbid the IRS from targeting individuals or organizations based on ideology, and federal officials are prohibited from directing IRS investigations for political purposes—constraints that could face legal challenge if the rule is finalized.

The Justice Department has opened separate investigations into several medical schools, accusing them of favoring Black and Hispanic students in admissions decisions. Trump officials contend that such preferences violate Title IV of the Civil Rights Act of 1964, the federal law that forbids discrimination in education and was enacted to dismantle segregation. IRS Chief Executive Officer Frank J. Bisignano stated that private schools engaging in what the administration characterizes as discriminatory practices should expect to lose their tax-exempt status. The proposed rule puts institutions on notice: comply or face the loss of a tax benefit that has been foundational to American higher education finance for generations.