A new federal tax program meant to benefit private schools could also unlock millions of dollars for public school districts, but Cleveland will have to hustle to see some of that money.
Last year, President Donald Trump’s overhaul of the tax code created the first federal voucher program intended to benefit private school students. The Education Freedom Tax Credit will go into effect Jan. 1 and 30 states, including Ohio, have opted in. That means next year Ohioans will be able to send a portion of what they normally pay in federal income taxes to fund scholarships instead.
Public education advocates in Ohio, and nationally, have criticized the program as another way to send tax payer money to private schools. But, if they play their cards right, public school districts could reap significant benefits from the program. Some researchers have estimated an average of $1,000 per student could be up for grabs in many public districts across the country.
That doesn’t mean it’ll be easy for districts to get a portion of this money — the program is filled with logistical hurdles. It also creates a difficult question for public school leaders, many of whom oppose voucher-style programs: Do they participate in a Trump-backed program that further funnels public money to private schools or risk leaving funds on the table that could benefit their students?
Signal Cleveland reached out to the Cleveland Metropolitan School District to ask whether it plans to try to tap into the program.
“CMSD is looking into how the Education Freedom Tax Credit might possibly benefit CMSD students,” Board Chair Sara Elaqad wrote back in an email.
Districts that want to take advantage should move swiftly, Marguerite Roza, a school finance expert said, because individual taxpayers need to know about the program to opt-in.
“Not only do you have to set it up and start making a plan, but you have to talk about it constantly,” she said. “The PTA should be briefed. The staff should be briefed. The board should be briefed.”
How does the tax credit work?
The program is a dollar-for-dollar credit. That means every dollar someone sends to a designated “scholarship granting organization” is one less dollar they owe the Internal Revenue Service when taxes are due.
States have to opt into the program, and Ohio already has. That means that, starting on Jan. 1, 2027 taxpayers will have the choice to donate to a “scholarship granting organization” and get that money shaved off the taxes they owe in 2028.
An individual can get a credit of up to $1,700 for their donation to a scholarship nonprofit. Couples who are filing jointly can get a credit of up to $3,400.
The credit is non-refundable, meaning that while a donation can reduce what someone owes the IRS to zero, individuals can’t receive a refund if they give more than what they owe.
The scholarship granting organizations that collect people’s donations act as intermediaries that distribute the donations based on their mission. Some might focus on funding scholarships for students at private schools whereas others could focus on paying for certain education-related expenses, like tutoring or after-school programming, for public school students. Families who home-school their children can also receive funds as long as they use them to pay for educational expenses.
Students can apply to receive funds from a scholarship granting organization as long as their family makes less than 300% of the area-median income. In Cuyahoga County, that’s currently $315,000 for a family of four.
How is the tax credit different from a traditional charitable donation?
When someone makes a tax-deductible donation to a traditional charity it lowers the amount of their income that the federal government can tax. This program directly reduces, dollar-for-dollar, how much in federal income taxes someone owes.
What are the requirements for a scholarship granting organization?
Proposed regulations released by the U.S. Treasury Department on Oct. 1 outlined a relatively flexible set of requirements for these nonprofits.
They must be recognized by the IRS, be verified by the state in which they operate, and spend at least 90% of their total revenue on scholarships that go directly to students and families to pay for education-related expenses.
Ohio already has a state version of the tax credit that allows taxpayers to divert up to $750 of their state taxes toward one of these nonprofits. That program started in 2021 and in its first four years raised close to $75 million, according to an analysis from the Brookings Institute, which also found higher-income people were much likely to take the credit by donating to a nonprofit in their area.
The recently released regulations clarify that, come January, families will be able to take both the state and federal credits, but they can’t double-dip by applying the same donation to both programs.
Currently, there are 53 scholarship granting organizations recognized by the Ohio attorney general. Most of them support parochial schools, but a few, like one nonprofit based in Nordonia Hills, help public school families pay for allowable education-related expenses.
How can public schools use the program?
The way the tax credit is structured, the nonprofits that distribute the money have the flexibility to set their funding priorities to benefit public school students. But public districts can’t use the money to pay for the things they’re legally required to provide families for free — like instruction or basic materials.
Instead, the donated money could be used to pay for things like field trips, extracurriculars, tutoring and activities they are allowed to charge fees for. Families would then get a scholarship from the nonprofit to cover those fees.
Public education advocates have argued this setup can make it harder for districts that already provide a lot of things to families for free to tap into the money. But Roza pointed out that districts and scholarship granting organizations have a lot of flexibility to communicate and work together.
“There’s nothing in the law to stop a [scholarship granting organization] from communicating with the district,” Roza said. “Or a district, you know, waiting to see how much money comes in and then setting the fee.”
When it comes to the state version of the tax credit, some districts, like Nordonia Hills, have worked with outside partners to establish scholarship granting organizations. In Nordonia Hills, the nonprofit raised enough to help many families in the district pay for full-day kindergarten since the district only offers free half-day, as allowed by the state.
Chad Lahrmer, the treasurer of the Nordonia Hills organization, thinks it’s most doable for public districts to benefit from the federal program if they work together.
“If you can create one that covers all the public schools and people can make a donation and then direct it into a specific school district, we can get a statewide conversation going,” he said.
Roza similarly envisions a future where districts, nonprofits and local employers could collaborate to make it easy for people to send some of the taxes typically withheld from their paychecks to a nonprofit dedicated public schools. She pointed out districts could just start with their own employees, which she estimates in a district like Cleveland could raise around $200 a student. At the very least, she thinks they should start thinking about accessing the credit as soon as possible.
“The problem with this plan is that it doesn’t happen on its own. It’s not like state or local money that just shows up, or federal money that just shows up,” she said. “This money you really have to go out and get it.”
Public districts could face hurdles to accessing the money
Public education advocates, like Piet van Lier, the deputy director for Honesty for Ohio Education, are critical of the program because they believe it’s more difficult for districts to tap into.
“I think there’s that infrastructure that the private school places have to do that kind of thing, whereas a public school would have to create it,” he noted.
For example, the Catholic Diocese in Cleveland, already operates a scholarship granting organization called the Angel Scholarship Fund, that raised $6.6 million, according to its 2024 tax documents. Partnership Schools, a nonprofit network of four Catholic schools in Cleveland, has already put out a call out to donors asking them to pledge their federal tax credit to support its students.
Van Lier also worries that the need to off-set the program’s hefty price tag—estimates range $26 billion to $51 billion annually—could lead to cuts for other education programs funded by the federal government, such as Title 1, which provides extra funding to schools serving kids from families with lower incomes, and IDEA which helps schools fund special education services.
“Where does that funding come from? What’s going to get cut?” he said. “Then there’s less money for those schools, and now they’re forced — in the best-case scenario — to raise some of that back through these tax credits.”
Beth Blaufuss, the chief strategy officer at Partnership Schools, also worries about that possibility. Many of their students in Cleveland also benefit from services the local districts provide them using Title 1 funding.
Blaufuss said that depending on how narrowly “scholarship granting organizations” set their priorities and on how widely taxpayers buy in, the tax credit could also just end up as a way for higher-income communities to write off scholarships that primarily benefit higher-income students.
“I think this is a situation where higher-earning taxpayers have to step up on behalf of lower-earning communities for this to work as a tool for educational justice,” she said. “Otherwise, it becomes a situation where the educationally rich become educationally richer.”
