TL;DR
- Three models fund private education: tax-credit scholarships (via SGOs), ESAs (education savings accounts), and vouchers.
- The big difference is the money. Tax-credit scholarships are funded by private donations; ESAs and vouchers spend government funds.
- The federal EFTC (§25F) is a tax-credit scholarship, privately funded, run through nonprofit SGOs, with donors claiming a federal credit of up to $1,700 per taxpayer (under Treasury’s proposed regulations, $3,400 for a married couple filing jointly when each spouse gives). It is not a voucher and not an ESA.
- Families can often combine a state ESA/voucher with a federal SGO scholarship, but not for the same expense.
The three models, side by side
| Tax-credit scholarship (SGO) | ESA | Voucher | |
|---|---|---|---|
| Who funds it | Private donors (who get a tax credit) | Government | Government |
| Who holds the money | The SGO, which pays schools and verified vendors directly, pays through a digital wallet, or reimburses receipted expenses | The family, in a restricted account | Paid to the school |
| What it covers | Qualified K-12 education expenses (per §530(b)(3)(A)) | Many expenses: tuition, tutoring, curriculum, therapies | Private-school tuition |
| Who’s eligible | Students eligible to enroll in public school, household income at or below 300% of area median, living in a participating state | Set by each state program | Set by each state program |
| Federal example | EFTC / §25F (this site) | None (state programs) | None (state programs) |
Tax-credit scholarships (SGOs)
In a tax-credit scholarship program, individuals (and in some state programs, businesses) donate to a nonprofit Scholarship Granting Organization (SGO) and receive a tax credit for the gift. The SGO then awards scholarships to eligible families for qualified education expenses. The money is private the entire way, a donor’s dollars, not a government appropriation, which is why these programs have generally survived legal challenges that have complicated direct public funding of religious schools.
The federal Education Freedom Tax Credit (§25F) is exactly this model, at national scale: a nonrefundable federal credit of up to $1,700 per taxpayer for donations to SGOs, beginning in 2027. Under Treasury’s proposed regulations (October 2026), which donors may rely on for 2027 gifts, spouses filing jointly are separate taxpayers, so a couple can claim up to $3,400 when each spouse gives. Unlike some state programs, only individuals qualify: the gift must be cash (not stock or crypto), designated as a §25F contribution when made, and a share of a gift made through a partnership or S corporation does not count. Donors can give to an SGO in any participating state, wherever they live.
Education savings accounts (ESAs)
An ESA flips the funding source: the government deposits public funds into a restricted, family-controlled account that can be spent across a menu of approved expenses, private-school tuition, tutoring, curriculum, therapies, sometimes technology. ESAs are the most flexible model for families because the family directs the spending, but they are funded by state appropriations and administered by (or for) the state. Arizona’s and Florida’s programs are well-known examples.
Vouchers
A voucher is the most traditional model: the government provides a set amount of public funds that pays tuition at a private school the family chooses, typically paid directly to the school. Vouchers are tuition-focused and, because they spend public money at private (sometimes religious) schools, have historically drawn the most legal and constitutional scrutiny of the three.
Where the federal EFTC fits
The EFTC is a federal tax-credit scholarship, column one in the table above. It does not appropriate government money to schools or families; instead it encourages private giving by returning the donation, up to the credit cap, to the donor as a tax credit. For families, the practical experience resembles applying for a scholarship: you apply through an SGO, which checks eligibility and awards funds for qualified expenses.
How the money moves is set by Treasury’s proposed regulations. Tuition, fees, and room and board billed by a school go directly to the school. Other providers can be paid directly if the SGO has verified them and they are not related to the student. An SGO may also use a “qualified digital wallet,” a third-party platform where families submit purchase requests and the platform pays pre-approved vendors or requires receipts, which gives a §25F scholarship some of an ESA’s flexibility. Otherwise, the only money that can go to a family is a reimbursement backed by a receipt. See four ways an SGO can pay.
Can you combine them?
Frequently, yes. A family in a state with an ESA or voucher may also benefit from an SGO scholarship funded through the federal credit. The key rule is no double-dipping: you can’t use two sources to pay the same dollar of the same expense. Treasury’s proposed regulations build that into SGO operations: every SGO must have systems to catch duplicate awards to the same student for the same expense that together exceed its cost, and before reimbursing a family it must check that no expense is reimbursed beyond its cost by more than one source. Under Treasury’s temporary regulations, participating states must also require SGO documentation reasonably tailored to preventing duplicate awards. What the rules don’t spell out is how an SGO coordinates with a particular state ESA or voucher program, and the detailed expense list still awaits Treasury’s separate §530 guidance, so confirm specifics with your SGO and your state program before assuming two sources stack.
For how the federal credit compares to tax tools rather than scholarship programs, see EFTC vs. 529 plans & Coverdell ESAs and EFTC vs. state scholarship tax credits.
Frequently asked questions
Is the federal EFTC a voucher?
No. A voucher spends government money directly on private-school tuition. The EFTC (§25F) is a tax-credit scholarship: it is funded by private donations to nonprofit Scholarship Granting Organizations, and donors receive a federal tax credit for giving. No public funds are appropriated to schools, which is a key legal and political distinction.
What's the difference between an SGO scholarship and an ESA?
An SGO scholarship is privately funded (donations) and administered by a nonprofit that awards money for education expenses. An ESA (education savings account) is funded by the government, which deposits public dollars into a restricted account the family controls and spends across approved vendors. Different funding source, different administrator, different control over the money.
Can a family use more than one at the same time?
Often yes, a family may be eligible for a state ESA or voucher and an SGO scholarship funded through the federal §25F credit. But you generally can't use two sources to pay for the same expense (no double-dipping). Treasury's proposed regulations (October 2026) require every SGO to run fraud controls, including systems to catch duplicate awards for the same expense that together exceed its cost and, before reimbursing a family, checks that no expense is reimbursed beyond its cost by more than one source. The rules do not spell out how an SGO coordinates with a particular state ESA or voucher program, so confirm with your SGO and state program.
Which model is the federal program, and how much is it?
The federal Education Freedom Tax Credit (§25F) is a tax-credit scholarship. Donors give cash to an SGO and claim a nonrefundable federal credit capped at $1,700 per taxpayer (up to $3,400 on a joint return when each spouse gives, under Treasury's proposed regulations), with a 5-year carryforward. It launches January 1, 2027.
