Can the EFTC help public-school students? What §25F actually allows

The federal Education Freedom Tax Credit, also called ECCA, the Federal Scholarship Tax Credit, and IRC §25F, is usually discussed as a private school measure. That framing is understandable, since most of today’s scholarship organizations fund private tuition. But it is not what the statute says. Read carefully, §25F is written around students and a broad list of educational expenses, and a public-school student can fall inside it. Treasury’s October 2026 regulations and fact sheet read it the same way.

The test is the student, not the school

Eligibility under §25F does not ask which school a child attends. It asks two things about the student:

1. Are they eligible to enroll in a public K-12 school? A child enrolled in a public school plainly satisfies it. Treasury’s proposed regulations add that a student need not be enrolled anywhere when applying: a student eligible to enroll in public school can receive a scholarship in the summer before the school year for expenses tied to enrolling later that year.
2. Is household income at or below 300% of AMGI? The statute uses area median gross income “as such term is used in section 42” (the Low-Income Housing Tax Credit). The proposed regulations compute it with HUD’s Section 8 method, adjusted for family size, and measure household income for the calendar year before the application. The IRS will publish the figures annually. Treasury estimates about 95% of American children live in households under the limit.

Nothing in that test requires attending, enrolling in, or transferring to a private school. Besides pay stubs, tax returns, and similar records, an SGO can verify income through a recent award letter showing a household member gets SNAP, TANF, WIC, Section 8 housing, or SSI, and foster children qualify automatically. School-wide free or reduced-price lunch status does not count. The full eligibility rules are laid out in our scholarship eligibility guide and in our read of the income rules.

What a public-school student can use it for

§25F does not write its own definition of qualified education expenses. It points to the existing list in IRC §530(b)(3)(A), the same expense list used for Coverdell Education Savings Accounts. Treasury’s proposed regulations keep that cross-reference (the definition is §530(b)(3)(A) “and any guidance thereunder”). The list reaches well beyond tuition, covers expenses at a “public, private, or religious school,” and several categories are directly usable by a child who attends a public school:

• Academic tutoring
• Special-needs services for a special-needs student (the statute does not itemize which services count; Treasury’s separate §530 guidance will address that)
• Books, supplies, and other equipment incurred in connection with enrollment or attendance
• Computer technology, equipment, and internet access for the student and family during the school years
• Uniforms, transportation, and supplementary items and services, including extended day programs, that the school requires or provides

In other words, a low-income family whose child attends a public school could, under the statute, receive scholarship support for a tutor, a laptop with internet at home, an extended day program the school provides, or speech therapy for a special-needs student (the common reading of “special needs services,” pending the §530 guidance). None of that requires leaving the public system. Treasury’s own October 2026 fact sheet lists “tutoring for students attending a local public school” among its examples of what scholarships can pay for.

Some details still wait on Treasury. Standardized and AP test fees are a newer 529-plan expense, but they are not named in §530(b)(3)(A), so whether they count is open. Treasury says it will issue separate §530 guidance on the expense list and on what counts as a “school,” and that it is treating that guidance as a high priority; it had not been issued as of October 1, 2026.

A broader program than its critics describe

Critics often describe the EFTC as a private-school subsidy. The statute tells a more generous story. What the federal text allows is wider than what today’s market happens to offer, and that gap is an opportunity, not a flaw.

The distinction matters because the breadth is already in the law, waiting to be used. Each SGO chooses which qualified expenses it funds, so serving public-school families is a design choice an organization can make, not a barrier it has to overcome. Treasury’s proposed regulations say so directly: an SGO “may choose to specialize in providing one type of qualified expense,” giving as its example “academic tutoring for qualified students in public schools,” and the state “cannot condition inclusion on the SGO list on the State’s approval of such a choice.” The temporary regulations, which take effect without a comment period and apply from September 1, 2026, bar a state from limiting the types of qualified expenses SGOs fund, which also means a state cannot require SGOs to specialize. As the federal program launches in 2027, nothing in §25F stops an SGO from putting that full breadth to work for public-school students. The door is open; the market simply has not walked through it yet.

A safe harbor for school-based tutoring

Treasury’s proposed regulations (October 2026), which SGOs may rely on for 2027, add a route aimed at schools in low-income neighborhoods. If an SGO funds individual academic tutoring, or special-needs services for a special-needs student, at a school in a low-income area, and the school selects the students based on each student’s academic or other need, those students are treated as meeting the income test without the SGO verifying household income. A school qualifies if it sits in a HUD “qualified census tract” or certifies that at least 80% of its students live in one.

The trade-off is an annual third-party audit, which the SGO must obtain and give to the state. It has to certify that:

• the school meets the census-tract test;
• the school selected the recipients based on academic or special need;
• the tutors or other providers were qualified to render the services;
• each student’s need was diagnosed independently by a professional not associated with the provider; and
• the services met appropriate quality standards, were provided often enough and long enough to help, and had their impact on each student assessed.

Award priority works differently here too. The renewal-then-sibling priority matters most for tuition; for tutoring or special-needs awards, the proposed regulations let an SGO prioritize by need instead. Treasury estimates this safe harbor would make about 170,000 more students eligible. It applies to any school that meets the low-income area test; the rules do not limit it to public schools.

What it would take to reach public-school students

For EFTC dollars to reach public-school students at any scale, a few things would need to line up:

1. An SGO that chooses to fund non-tuition expenses. Because the expense menu is set by each SGO within the federal rules, a public-school focus is a design choice an organization can make.
2. A participating state. Scholarships only flow to students who live in a state that has elected to participate, and the SGO must be on that state’s list. The governor, or another official state law designates, makes the election one calendar year at a time. See the state status map.
3. Operational capacity to verify non-tuition spending. Funding tutoring, devices, or therapy requires expense verification that is more involved than paying tuition to a school, and the proposed regulations spell out the allowed methods. An SGO may pay a tutor or other vendor directly only if the vendor has been verified as an appropriate provider, is not related to the student, and must refund overpayments and errors. It may use a qualified digital wallet (a third-party platform where families submit purchase requests and vendors are pre-approved or receipts are required). Or it may reimburse a family against a receipt proving payment of a qualified expense, after checking that no other source is also reimbursing it beyond its cost. No other money may go to families. See four ways an SGO can pay.
4. Students at more than one school. Every SGO must fund at least 10 students who do not all attend the same school, so a program confined to a single building does not qualify on its own.

Can a school district or school foundation be the SGO?

Ordinarily not the district itself. §25F(c)(5)(A) requires an SGO to be a 501(c)(3) organization, exempt from tax, and not a private foundation, and Treasury’s proposed regulations restate that requirement. Neither the statute nor the regulations mention school districts. Under general tax law, a school district is a governmental unit, not ordinarily a 501(c)(3) charity, so the vehicle would have to be a separate nonprofit, such as a district’s education foundation.

That foundation then faces the spending test. Unless at least 85% of an organization’s activities are scholarship granting, the proposed regulations apply the 90% test to all of its gross receipts, not just its §25F gifts. A foundation whose main work is classroom grants, teacher awards, or capital projects would fall short of 85% and would have to spend 90% of everything it takes in on scholarships for eligible students. Treasury acknowledged that its 85% safe harbor “may require the formation of new organizations to conduct section 25F activities.” A dedicated organization is the cleaner path, and one aiming for a state’s 2027 list should be formed, with its exemption application filed on time, by January 1, 2027.

The other SGO rules apply as well: at least 10 students who don’t all attend the same school, recipients who live in a state where the SGO is listed, and disqualified-person limits that bar scholarships to the SGO’s officers, directors, substantial contributors, anyone who takes part in selecting recipients (including committee members), and their family members.

What to watch

None of this is automatic, and a few practical variables will shape how far it goes:

• SGO discretion. The statute permits broad expenses, but no family is entitled to a non-tuition award. The SGO sets its own covered-expense policy, and Treasury notes an SGO may also narrow its focus, for example to certain subjects or to households below 80% of area median gross income.
• The §530 guidance is still to come. Treasury released proposed §25F regulations on October 1, 2026; donors, SGOs, and states may rely on them for 2027 contributions, but they are not final, and comments are due December 1, 2026. They confirm the §530(b)(3)(A) cross-reference but leave the detailed expense list and the meaning of “school” to separate §530 guidance that has not yet been issued, so the treatment of some expense categories is still open.
• States decide whether to participate, not what SGOs fund. Under the temporary regulations, a state cannot limit the types of schools recipients attend or the types of qualified expenses SGOs fund. State law still matters in one place: §530 defines a “school” as one providing K-12 education “as determined under State law,” which is why the same cross-reference can produce different results across states, as our state-by-state homeschool analysis shows. Homeschool treatment remains open until Treasury issues its §530 guidance.

The accurate summary is narrow but real: §25F is not, by its terms, a private-school-only program. It is a student-centered credit with a broad expense definition that can include public-school students. Today that potential is largely unused, which is a statement about the market, not the law.

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