DEI could cost private schools, colleges tax-exempt status under proposed Trump rules 

The Trump administration proposed new regulations to end the tax-exempt status for private schools engaging in diversity, equity, and inclusion practices, putting private educational institutions “on notice.”

The Treasury Department and Internal Revenue Service proposed the rules, which, if enacted, would go into effect after May 2027 to give schools time to update their policies. Under the regulations, a private school would lose its tax-exempt status if it “adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin,” while permitting religious affiliation and race-neutral efforts to aid disadvantaged students.

The rules would sweep broadly – covering admissions, scholarships and loans, athletics, and “every other school-administered or school-supported program” – and apply to K-12 private schools, colleges, universities, professional schools, and trade schools alike, affecting an estimated 18,000 institutions.

“Private educational institutions that promote discriminatory practices will no longer be afforded the benefits of federal tax-exempt status,” IRS Chief Executive Officer Frank Bisignano said in a statement. “Today’s proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status.”

The Trump administration pointed to Supreme Court precedent holding that tax-exempt status is “conditioned on compliance with fundamental public policy, including the prohibition against racial discrimination.” Among the cases it cited was Students for Fair Admissions v. Harvard, a 2023 lawsuit in which the Supreme Court struck down affirmative action policies in college admissions.

“Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education,” Treasury Secretary Scott Bessent said in a statement. “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature.”

The proposed rules are already facing pushback from Democrats who argue they will disadvantage students. “The Trump administration’s effort to strip the tax-exempt status from thousands of schools and universities is another attempt by President Trump to impose his will on academic institutions,” Democratic Sen. Michael Bennet said in a statement, “undermining opportunities of hundreds of thousands of students across the country.”

Yet supporters argue the new regulations will help restore merit-based academics.

“The Trump administration is right to draw a clear line: universities that discriminate on the basis of race should not be rewarded with tax-exempt status,” Manhattan Institute’s Jesse Arm, who is vice president of external affairs, wrote on X. “Colorblind meritocracy was a core promise of President Trump’s campaign. His administration is delivering on it.”