Education Freedom Scholarships and Opportunity Act

Bill Number

S. 370

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-02-03: Read twice and referred to the Committee on Finance.

Last Updated

2025-04-29T15:19:51Z

AI-Generated Summary

Purpose

The Education Freedom Scholarships and Opportunity Act aims to promote educational choice and workforce development by providing federal tax credits to individuals and corporations who donate to approved nonprofit organizations. These donations fund scholarships for elementary, secondary, and vocational training for students, particularly those from low-income or underserved backgrounds, without increasing direct federal spending on education.

Key Provisions

• Tax Credits for Contributions:
• Individuals: A non-refundable tax credit equal to 100% of qualified cash donations, capped at 10% of the donor's adjusted gross income (AGI) per year. Unused credits can carry forward for up to 5 years.
• Corporations: A non-refundable tax credit equal to 100% of qualified cash donations, capped at 5% of the corporation's taxable income per year. Also carries forward for up to 5 years.
• Credits cannot exceed the donor's federal income tax liability and cannot be sold or transferred. Donors must elect to claim the credit annually.

• Qualified Donations and Eligible Organizations:
• Donations must go to "eligible scholarship-granting organizations" (nonprofits that provide scholarships for K-12 education, including private, religious, or home schooling) or "eligible workforce training organizations" (nonprofits focused on vocational, apprenticeship, or certification training for secondary or postsecondary students).
• Organizations must be tax-exempt under Section 501(c)(3) of the Internal Revenue Code, allocate at least 90% of funds to scholarships, serve multiple students and families across providers, and be approved by states.
• Scholarships cover qualified expenses like tuition, books, and training costs, but exclude public school funding.

• Administration and Caps:
• A federal web portal, managed by the Departments of Education, Treasury, and Labor, lists approved organizations, processes donations, provides instant tax credit pre-approvals, and shares program information.
• Donations can also be made directly to organizations with federal pre-approval.
• National annual cap: $10 billion total ($5 billion for K-12 scholarships, $5 billion for workforce training), allocated to states based on population (ages 5-17), poverty rates, prior-year usage, and demand for training. States get a minimum 0.5% share.
• States must submit lists of eligible organizations by January 1 each year; unused allocations are reallocated to other states.
• After five years or when $2.5 billion in K-12 credits are claimed, an alternative state allocation formula shifts to reward states with existing private school scholarship programs.

• Protections and Rules:
• Scholarship funds are not treated as taxable income for recipients and do not affect eligibility for other federal benefits.
• No federal or state control over private, religious, or home education providers; states cannot discriminate against faith-based organizations.
• Encourages parental choice in using scholarships for diverse providers, including nonprofits and faith-based ones.
• Prevents double-dipping: Total tax benefits (federal + state/local) cannot exceed the donation amount.

Significant Changes to Existing Law

• Amends the Internal Revenue Code of 1986 by adding new sections 25F (individual credits) and 45BB (corporate credits as part of the general business credit), introducing the first federal tax incentives specifically for private scholarships and workforce training donations.
• Expands definitions of allowable educational expenses to include career/technical education under the Carl D. Perkins Act and industry certifications.
• Establishes a new federal web portal and allocation system, shifting some administrative burden from the IRS to the Department of Education, while requiring state involvement without altering state funding authority for public education.
• Introduces caps and reallocation mechanisms to manage program costs, unlike open-ended tax credits in existing law.

Potential Impacts

• Government Agencies: The Departments of Education, Treasury, and Labor will face new administrative duties (e.g., portal maintenance, allocations, reporting), with authorized funding starting in fiscal year 2025. States gain flexibility in partnerships but must comply with reporting to access funds, potentially increasing state-level coordination.
• Citizens: Low-income families and students may gain access to more educational options (e.g., private schools, vocational training) via scholarships, improving choice and skills. Taxpayers benefit from credits that reduce federal tax burdens but could slightly increase taxes for non-participants if overall revenue drops. No direct impact on public school funding.
• International Relations: None apparent; the bill focuses on domestic education and training.

Main Stakeholders Affected

• Taxpayers (Individuals and Corporations): Primary beneficiaries of tax credits, incentivized to donate for education causes.
• Students and Families: Especially those in poverty or from federally recognized tribes, gaining scholarships for K-12 alternatives or workforce training.
• Eligible Organizations: Nonprofits (e.g., scholarship funds, community colleges, apprenticeship programs) that receive donations and must meet allocation and reporting rules.
• States and Local Governments: Responsible for identifying organizations and administering programs; may partner across states but retain authority over public education.
• Education Providers: Private, religious, home schools, and training entities benefit from increased enrollment and funding without federal oversight.
• Federal Agencies: Departments of Education, Treasury, and Labor handle implementation and oversight.

Notable Legal, Constitutional, or Political Implications

• Legal: Ensures compliance with tax code by treating scholarships as non-taxable and prohibiting credit sales, while mandating regulations to avoid over-benefiting from combined federal-state incentives. States submitting organization lists must certify authority, but federal law does not limit who can submit on their behalf.
• Constitutional: Includes explicit protections against federal interference in private or religious education (e.g., no control or discrimination based on faith), aligning with First Amendment concerns over church-state separation. Promotes equal treatment for diverse providers, potentially reducing Establishment Clause challenges seen in similar state programs.
• Political: Advances school choice and workforce development agendas by leveraging private donations rather than public funds, which could spark debates on equity (e.g., benefiting wealthier donors/states more) or diversion from public schools. The cap and reallocation system introduces competition among states, possibly influencing education policy at state levels without mandating changes.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Cruz, Ted [R-TX]

Cosponsors (1)

Sen. Lankford, James [R-OK]

Recent Actions

• 2025-02-03: Read twice and referred to the Committee on Finance.
• 2025-02-03: Introduced in Senate

Bill Versions

• Education Freedom Scholarships and Opportunity Act — issued 2025-02-03 — PDF (24 pages)