Thirteen education groups told Treasury its 90% rule would shut out the nonprofits best placed to run SGOs

Start with the rule at the center of this, because everything else follows from it. The Education Freedom Tax Credit (also called the Federal Scholarship Tax Credit, ECCA, or §25F) requires a Scholarship Granting Organization to spend at least 90% of its income on scholarships. The statute never says what counts as the organization's income. That sounds like a technicality. It is actually the question of who is allowed to be an SGO at all, because the answer decides whether an existing charity that does several things can run a scholarship program alongside its other work, or whether only a single-purpose scholarship entity can qualify. Our explainer on the 90/10 rule walks through the mechanics.

In its June preview of the forthcoming regulations, Treasury indicated it expects the rules to “generally measure the 90-percent spending requirement against the organization’s total receipts, unreduced by expenses.” Read that against a real balance sheet. A community education foundation that raises $1,000,000 a year, of which $200,000 is §25F scholarship donations and $800,000 funds tutoring, teacher grants, and afterschool programming, would have to spend $900,000 on scholarships to clear a total-receipts test. It cannot. Under that reading it is not eligible to be an SGO, no matter how well it is positioned to run one.

On July 30, 2026, thirteen national education organizations sent Treasury a letter saying exactly that. It is addressed to Kevin Salinger, the Deputy Assistant Secretary for Tax Policy who delivered the June preview, and it is signed by AASA (The School Superintendents Association), the Association of Education Service Agencies, the Association of School Business Officials International, the National Rural Education Association, the Afterschool Alliance, the Campaign for Grade-Level Reading, the National Summer Learning Association, Accelerate, the Children’s Funding Project, the National Association of Education Foundations, the National Institute of Early Education Leadership, the Give Forward Foundation, and Civitas Strategies. The framing is worth noting: these are groups representing superintendents and school business officials, and the letter is not an argument against the credit. It asks Treasury to adopt what it calls the best reading of the statute so that more organizations can participate, and says so plainly, that the recommendations would “dramatically increase the ability of students” in participating states to use the program.

Their fix for the 90% question is specific. The statute already requires an SGO to hold §25F contributions in a segregated account, and the coalition argues that account is the natural measure of the organization’s §25F income. Measure the 90% against the segregated account, they write, and the rule still does the work Congress intended, which is to stop an SGO from spending more than 10% of donors’ money on overhead. They also point out that Treasury already previewed a safe harbor along these lines for organizations whose “activities are largely scholarship-granting activities,” and ask it to extend that approach to all SGOs. Their warning about the alternative is blunt: charities would stop accepting other donations meant for the same students purely to satisfy the ratio, and Treasury “should avoid such a zero-sum result.”

The other four recommendations matter just as much to anyone standing up an organization now. First, on timing: Treasury should let a state list a prospective SGO while its 501(c)(3) application is still pending at the IRS, perhaps with a special designation that converts once the determination letter arrives. The coalition’s reasoning is that IRS processing times are unpredictable and the program starts January 1, 2027, so a slow determination could otherwise cost an organization a full year. They also ask Treasury to explain how a brand-new organization with no scholarship track record can qualify under §25F(c)(5) and (d), and how one SGO could transfer donations to another if it turns out it cannot operate. If you are weighing whether to convert an existing nonprofit or start fresh, our guides on converting an existing nonprofit and starting an SGO cover the trade-off.

The last three recommendations are about what the money can buy. §25F borrows its definition of qualified expenses from the Coverdell rules at §530(b)(3), which include “supplementary items and services.” The coalition wants that read broadly enough to cover afterschool, summer school, weekend, enrichment, work-based, and dual-enrollment programs, and wants guidance on eligible expenses released before or at the same time as the proposed regulations, on the grounds that donors and providers cannot plan without it. It argues a supplementary service need not be delivered by school staff inside a school building, only that some nexus exist between the school and the provider, whether by contract, memorandum of understanding, or a district list of recommended providers. And it asks Treasury to confirm that state law controls the definition of “school,” including in states where students attend public pre-kindergarten. Our explainer on qualified expenses tracks where this currently stands.

Two things make this letter worth watching rather than filing away. One is who sent it. Public-school organizations engaging Treasury on the mechanics of the credit is a different posture from opposing it, and it lines up with the case we covered when North Carolina looked at public-school-serving SGOs. The other is timing. Treasury has said proposed regulations are due by the end of September 2026, and its own Unified Agenda filings suggest the startup rules may arrive already final, with comments collected afterward. If that holds, letters like this one are the input Treasury actually receives before the rules bind, which makes the pre-publication window the real comment period.

For operators, the practical read is that the definition of income is still open and worth planning around rather than assuming. If your organization does more than grant scholarships, model both readings before you decide whether the §25F program lives inside your existing entity or in a new one, because the answer changes which is viable. No state has opened SGO certification yet, so nothing is lost by waiting on the rules, and a great deal is lost by building an entity structure the final rule does not permit. Check where your state stands on the participation map, see who is already organizing in the SGO directory, and work through formation with the free SGO builder.