The U.S. Treasury Department and Internal Revenue Service (IRS) on Thursday proposed a rule that would strip private schools and colleges of their tax-exempt status if they maintain policies or practices that discriminate on the basis of race, color, or national or ethnic origin. The regulation, which would take effect in May 2027, marks a significant escalation in the Trump administration’s efforts to eliminate diversity, equity, and inclusion (DEI) initiatives in education.
The proposal applies to an estimated 18,000 private educational institutions, including colleges, universities, and K-12 schools, and would specifically target programs in admissions, scholarships, athletics, and facilities that provide targeted assistance based on race. The Treasury Department stated in a news release that such policies would be deemed incompatible with the tax-exempt status under Section 501(c)(3) of the U.S. tax code.
Treasury Secretary Scott Bessent framed the move as a defense of students against discrimination, asserting that policies rebranded as "equitable" or "inclusive" do not alter their discriminatory nature. "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature," Bessent said in a statement. "This administration is standing up for America’s students by ensuring racial discrimination has no place in American education."
The rule is the latest in a series of actions by the Trump administration to dismantle DEI programs across federal agencies and institutions receiving federal support. Scores of universities have already shut down or rebranded DEI offices, eliminated minority-focused scholarships, and disbanded affinity groups under pressure from the White House.
Scope and Implementation
The proposed regulation would take effect after May 2027, giving institutions time to review and adjust their policies. The Treasury and IRS estimate that up to 18,000 private schools and colleges could be affected, though the final impact would depend on how broadly the rule is interpreted and enforced.
Under the proposal, any institution found to engage in racial discrimination—whether through admissions practices, financial aid, or other programs—would risk losing its tax-exempt status, which currently allows donations to these schools to be tax-deductible. The rule explicitly states that benefits provided to students based on race, including targeted scholarships or admissions preferences, would be deemed discriminatory.
Reactions and Broader Context
The announcement follows a broader campaign by the Trump administration to roll back DEI initiatives, which officials have argued discriminate against white and Asian American students. Critics of DEI policies contend that such programs create reverse discrimination, while supporters argue they are essential for addressing systemic inequities in education.
The proposal has drawn attention from higher education leaders, civil rights groups, and legal experts, many of whom are expected to submit public comments during the rulemaking process. The Treasury Department has not yet released a timeline for finalizing the regulation, but the public will have an opportunity to weigh in before it takes effect.
Background: DEI Policies Under Scrutiny
DEI programs have been a contentious issue in education for decades, with debates intensifying in recent years over their role in admissions, hiring, and campus culture. Proponents argue that such initiatives foster inclusivity and address historical disparities, while opponents contend they create new forms of discrimination.
The Trump administration’s push to eliminate these programs aligns with its broader agenda to reduce federal oversight of diversity initiatives. Earlier this year, the administration directed federal agencies to review and dismantle DEI policies, citing concerns over racial preferences.
Next Steps
The proposed rule is now subject to a public comment period, during which stakeholders can provide feedback before the Treasury and IRS finalize the regulation. If implemented, the rule would take effect in May 2027, giving institutions nearly three years to comply or challenge the policy through legal or administrative means.