Trump Admin Targets College Tax Exemptions Over DEI Policies

The Trump administration is proposing a new rule that would strip private schools and colleges of their tax-exempt status if they provide targeted help to students based on race, marking a significant escalation in the White House’s campaign against diversity, equity, and inclusion (DEI) programs in higher education. The Treasury Department and IRS issued the proposed regulations on September 3, 2026, as AP News reported.

The rule would apply to private primary and secondary schools, colleges, universities, professional schools, and trade schools. Treasury and IRS estimate that up to 18,000 private educational institutions could be affected.

What the Proposed Rule Would Do

Under the proposed regulation, a private school would not qualify for federal tax-exempt status under section 501(c)(3) if it adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin. The rule would apply across admissions, educational policies, scholarships and loans, athletics, and every other school-administered or school-supported program, according to the IRS press release.

The proposal would also eliminate outdated provisions of IRS guidance that permitted schools to favor certain racial preferences in admissions, facilities, programs, scholarships, and financial assistance.

“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. Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”

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

The final regulations would apply to taxable years beginning on or after May 31, 2027, providing institutions time to review and update their policies.

Legal Foundation and Precedents

The proposal is grounded in Supreme Court precedents including Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. Harvard, according to the Treasury Department.

It’s incredibly rare for the federal government to go after a college’s tax-exempt status, but there is one notable precedent. Bob Jones University, a small Christian school in South Carolina, lost the benefit in the 1970s over a ban on interracial dating and marriage on campus. The Supreme Court upheld the IRS’s decision to deny the school its exemption in 1983. The school has since ended the ban and regained tax-exempt status in 2017, as AP News detailed in background reporting.

America’s private universities have been exempt from many taxes for more than a century because they provide a public good. The benefit saves many universities millions of dollars every year. Tax-exempt status also allows donations to be tax-deductible, which is critical for fundraising.

Broader Campaign Against DEI

The proposal is the latest attempt by the Trump administration to pressure schools and colleges to weed out diversity, equity and inclusion policies that had become common before President Donald Trump returned to the White House. Trump officials have used Civil Rights-era laws to unwind the policies, saying they discriminate against white and Asian American students.

Scores of universities have shut down or rebranded their DEI offices and ended scholarships and clubs designed for minority students under pressure from the White House, as AP News reported in its coverage of campus rollbacks. The Justice Department has separately opened investigations into several medical schools that it accuses of favoring Black and Hispanic students in admissions, according to AP News.

Trump previously threatened to cut Harvard University’s tax-exempt status in 2025 during his battle with the nation’s oldest college. In a response, Harvard officials said there was no legal basis for doing so and argued it would force cuts to financial aid and crucial medical research.

Race-Neutral Alternatives and Exemptions

The proposal would not prevent a private school from maintaining a religious mission, curriculum, or program of religious observance. Religious schools may continue to select students based on genuine religious affiliation or membership to remain consistent with existing federal law.

Schools may continue to assist disadvantaged students using race-neutral criteria such as family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement when awarding admission or financial assistance.

Legal Constraints and Next Steps

Laws forbid the IRS from targeting individuals and organizations for ideological reasons, and federal officials are not allowed to direct IRS investigations. The Treasury Department’s approach through proposed regulations is seen as a way to establish a general rule rather than target specific institutions.

The rule must go through a public comment period before being finalized, and many schools would likely be audited by the IRS to ensure compliance once it takes effect, as the New York Post noted.

The proposal comes amid a broader trend. After the 2023 Supreme Court ruling on affirmative action, the percentage of scholarships targeting specific races, ethnicities, or genders dropped from 15% in 2023-2024 down to 11% by 2026, according to data from the National Scholarship Providers Association.

What to Watch For

The proposed rule now enters a public comment period, during which stakeholders from higher education, civil rights organizations, and tax law experts will have the opportunity to weigh in. Legal scholars have expressed skepticism about the administration’s ability to unilaterally reshape charitable tax law, while others warn that the move could succeed given the precedent set by the Bob Jones University case.

For private colleges and universities that maintain race-conscious programs, the stakes are significant: loss of tax-exempt status would not only mean paying taxes on income but would also eliminate the tax deductibility of donations, potentially devastating fundraising operations. The final rule, if adopted, would take effect for taxable years beginning on or after May 31, 2027.