The Trump administration is hitting private schools where it hurts the most: their tax-exempt status. A new rule proposed by the Internal Revenue Service (IRS) on Thursday would strip private schools at all levels of education of tax-exempt status for using racial preference policies like diversity, equity, and inclusion (DEI).
The Treasury Department estimates that the new rule could affect the statuses of 18,000 private elementary, secondary, and post-secondary institutions, including colleges, universities, and trade and professional schools.
According to Treasury Secretary Scott Bessent, the move is designed to go after schools that have claimed to get rid of their DEI departments and policies, but in reality have only hidden them from public scrutiny while the Trump administration goes after racial discrimination.
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” he said in a statement. “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.”
Harvard University may have started the trend in 2023 after the Supreme Court decided Students for Fair Admissions v. Harvard, ruling that race-based admissions schemes like affirmative action are unconstitutional. Immediately after, then-President Claudine Gay, the disgraced plagiarist who still retains a job at the school after resigning the presidency, signaled that prospective students could still benefit from communicating their race on their applications, hinting that admissions boards would still consider that factor.
Harvard also rebranded its DEI office from the “Office of Equity, Diversity, Inclusion, and Belonging” to the “Office of Community and Campus Life.” Hiding the programs while still keeping them functional is a strategy employed by numerous schools. The Justice Department recently determined that Yale Medical School discriminated based on race.
Tax-exempt status is contingent on institutions complying with “fundamental public policy, including the prohibition against racial discrimination,” the IRS stated.
Disqualifying noncompliance would not just include DEI in admissions or hiring practices at the schools, which have received a majority of the focus thus far, but would also include racial-preference rules in educational policies, scholarships and loans, athletics, and “every other school-administered or school-supported program.”
This indicates the rule would apply to things like “affinity groups,” where students of certain demographics are able to discriminate as a matter of ideology against others who are not part of that group. Under the new guidance, such groups would not likely be allowed if the schools support their ability to meet using space provided by the school.
Medical schools that support and teach the idea of “racial concordance,” where non-white patients get race-matched with a doctor, thereby creating an artificial admissions necessity for non-white students, would also likely no longer be able to apply these discriminatory standards.
The rule also says, however, that other “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” can be used.
Some of those aspects have been used in the Michigan model for circumventing affirmative action in admissions, which the state outlawed in 2006. Many of the “proxies for race” were superimposed onto admissions schemes after Students for Fair Admissions.
Once finalized, the rule would take effect May 31, 2027.
