What Is the Education Freedom Tax Credit and How Will It Work?

• By Cecilia Retelle Zywicki
• 09/24/26

The federal Education Freedom Tax Credit (EFTC) is a new source of funding for education that could benefit 90% of students in states that have opted in to the program. However, some confusion and misconceptions exist surrounding details of the program, including which programs may qualify, how parents can apply for scholarships, and how public school students can benefit. What is clear is that parents may have access to an unprecedented amount of new education funding, with the agency to decide what educational services could benefit their child.

Additional final guidance from the U.S. Treasury Department on what types of education-related expenses qualify is still pending, but we know enough to be excited about the potential benefits for millions of students and the schools and educational providers supporting them.

Here are the questions I hear most often in my conversations with school leaders and parents, and the most accurate answers we have from the U.S. Treasury Department, the primary source of all information related to the federal Education Freedom Tax Credit.

When does the EFTC go into effect and which states are participating?

The EFTC will go into effect on Jan. 1, 2027 nationally, and students who reside in a state that has opted in (30 thus far) are eligible to participate in the program. Find the current list of participating states here. This list could grow as some states are waiting for final guidance from the Treasury Department before they decide whether or not to opt in.

Who qualifies for EFTC scholarships?

School-age K-12 children who reside in an opted-in state, who are eligible to enroll in a public elementary or secondary school, and whose household income does not exceed the income threshold (currently 300% of the area’s median gross income) will qualify. The Treasury Department stated that it anticipates 90% of students will qualify for scholarships.

Where does the funding come from?

Only students in states that have opted in can receive scholarships; however, taxpayers in any state may contribute to a Scholarship Granting Organization (SGO). For example, grandparents who live in one state may choose to contribute to an SGO in a state where their grandchildren go to school.

The benefit and incentive to taxpayers for contributing is that the EFTC creates a new tax credit of up to $1,700 for taxpayers who make qualified contributions to not-for-profit, mission-driven SGOs. It is those contributions to qualified SGOs that fund the scholarships awarded to eligible students. Parents are the ones who decide which scholarships to apply for and which qualified education services they want for their child.

How much money will be available?

A report cited in the Department of Education fact sheet estimates that contributions could total $24 billion a year and that roughly 90% of students could fall within the household income limit.

Based on data supplied by the U.S. Census Bureau’s 2024 American Community Survey, there are roughly 29.3 million students living in the 30 states that have opted in to the EFTC program. If 90% of those students qualify for scholarships and just half of those students submit their applications and receive a $1,000 scholarship, more than $13.2 billion could be available to families and paid to the educational service businesses and programs families have chosen.

How will the funds be disbursed?

SGOs are at the center of operations, and each must be a nonprofit organization that meets federal requirements under Section 25F. Each must also be included on the participating state’s list of SGOs. SGOs receive those eligible contributions, verify student eligibility, and then award scholarships to eligible students.

The process for families is that they apply for scholarships through the SGOs, not through schools or other service providers. Marketplaces like LearningSpring will streamline the search process by providing families with a unified list of schools and providers to find the services their child needs. The precise process for how the funds will be disbursed will depend on the final guidance issued by the Treasury Department.

What services are eligible?

That final guidance, expected from the Treasury Department in late September 2026, will clarify the kind of educational expenses that will qualify. At this moment, these broad categories of expenses are expected to qualify:

• Tuition
• Academic tutoring
• Support services for students with disabilities or special needs — consistent with Section 530 guidance — who are attending a public or charter school
• After‑school enrichment programs connected to K-12 education at public, private, or charter schools

The new guidance from the Treasury Department will clarify if these kinds of expenses (or more) will also be approved:

• Online educational materials, books, curriculum, or other instructional materials
• Technology tools
• Transportation
• Test prep courses (ACT, AP, SAT)

SGOs will be responsible not only for receiving contributions and awarding scholarships, but also for verifying student eligibility for the qualifying educational services.

What could be the larger benefit of the EFTC for educators, families, and community members?

The EFTC empowers taxpayers to support the educational causes they care about, and it empowers families with individual choice and funds to select the educational services they deem their child needs. This influx of funding could also be a catalyst for public school students to expand the education services they can receive from educators in their building.

For example, teachers and other school specialists might be able to set up their own businesses offering tutoring services to families. Specialists like reading interventionists and speech pathologists might use EFTC funding to expand services to individual students after school or on weekends.

Collectively, the opportunities created by this federal tax credit program extend to public schools as well as private and charter schools. They also extend to teachers, education specialists, and families. Parents will have greater resources to seek out the educational support their children need. Public schools may be able to expand programs for students in their communities. Teachers and specialists may find new ways to put their expertise to work beyond the school day.

The EFTC is not simply a new way to pay for education. It could give families, educators, schools, and communities more ways to build the educational opportunities their children need. We do not know all of the details of the program yet, but we know enough to begin thinking about what could be possible — and preparing for it now.