The Trump administration is pushing a Treasury rule to strip tax-exempt status from private schools and colleges that provide race-based targeted aid in admissions, scholarships, or facilities, with the rule slated to take effect after May 2027.

The rule would ban programs tied to race in admissions, scholarships, and facilities, arguing such practices undermine the charitable purpose of tax-exempt institutions.

If finalized, the rule would deem admissions, scholarships, and facilities that rely on race as incompatible with tax-exempt status once it goes into effect after May 2027.

The move fits a White House effort to curb DEI initiatives on campuses and reflects ongoing tensions over race-conscious admissions and related civil rights investigations by the Justice Department.

The legal framework rests on IRS nonprofit rules and federal civil rights laws, including prohibitions on targeting individuals or groups for ideological reasons and Title IV protections against education discrimination.

Higher education leaders warn the proposal could affect financial aid, donations, and compliance burdens, raising concerns about legal uncertainty for institutions already operating under nondiscrimination rules.

Administration officials frame the proposal as restoring merit, while critics warn it could reduce access for students of color and working-class students.

Treasury Secretary Scott Bessent has argued that rebranding race-based preferences does not change their discriminatory nature and could be targeted under the rule, potentially affecting up to thousands of private institutions.

Bessent emphasized that race-based preferences remain discriminatory even when labeled as equitable or inclusive, reinforcing the administration's stance against DEI policies in education.

Treasury and IRS officials say private schools that promote discriminatory practices would lose their exempt status, sending a formal warning to affected institutions.

The proposal is part of a broader effort to roll back DEI policies in higher education, aligning with a conservative interpretation of Civil Rights-era law.

The regulation seeks to end race-based student aid policies and signals that simply rebranding DEI initiatives as neutral would not circumvent discrimination concerns.