Trump Targets Universities’ Tax-Exempt Status Over Race-Based Programs

The Donald Trump administration has proposed a new rule that could revoke the tax-exempt status of private schools and universities offering specific benefits to students based on race.

The proposal, introduced Thursday by the Treasury Department, represents a new offensive by the Trump administration against diversity, equity, and inclusion (DEI) policies at US educational institutions.

If approved, the regulation would take effect after May 2027.

What Would Change Under Trump’s New Tax Proposal?

The rule states that offering race-based benefits in areas such as admissions, scholarships, and facilities would be incompatible with the requirements educational institutions must meet to maintain their tax-exempt status.

This could have significant financial consequences for private universities, many of which have benefited from tax exemptions for decades because they are considered institutions that provide a public service.

The Treasury Department and Internal Revenue Service (IRS) estimate that the regulation could affect up to 18,000 private schools, universities, and other educational institutions.

Race-Based Programs for Black and Hispanic Students Face Pressure

The proposal is part of the Trump administration’s efforts to eliminate DEI policies that specifically benefit certain racial groups.

Dozens of universities have already closed, modified, or renamed their diversity offices, in addition to eliminating scholarships and organizations intended for minority students.

Treasury Secretary Scott Bessent warned that renaming these programs does not necessarily prevent the government from scrutinizing them.

“Changing the name of race-based preferences to terms like equity, inclusion, or diversity promotion does not change their discriminatory nature,” Bessent stated.

The administration argues that these policies can discriminate against White and Asian American students and says its goal is to restore a merit-based education system.

Universities Could Lose Millions of Dollars

Losing tax-exempt status could have a significant financial impact on some universities.

Private higher education institutions in the United States have received various tax exemptions for more than a century, a benefit that can be worth millions of dollars annually.

Additionally, maintaining nonprofit status allows certain donations to these institutions to remain tax-deductible.

Trump has previously threatened to use this measure against universities.

During his confrontation with Harvard, the president proposed revoking the institution’s tax benefits. University officials argued that there was no legal basis for doing so and warned that the measure could result in cuts to financial aid and medical research.

Supreme Court Case Provides a Precedent

Although the federal government rarely revokes a university’s tax-exempt status, there is a significant precedent.

Bob Jones University, a Christian institution in South Carolina, lost the benefit because of policies prohibiting interracial relationships and marriages.

The Supreme Court later upheld the IRS decision denying the university tax-exempt status.

The university eventually eliminated the policy and regained its tax-exempt status years later.

Trump Administration Also Investigates University Admissions

The Trump administration’s campaign is not limited to the Treasury Department’s new proposal.

The Justice Department has also opened investigations into several medical schools accused of favoring Black and Hispanic students during their admissions processes.

Administration officials argue that these practices may violate the Civil Rights Act of 1964.

Frank J. Bisignano, executive director of the IRS, warned that educational institutions continuing to use practices considered discriminatory could lose their tax benefits.

“The proposed regulations put institutions on notice, and schools that continue to engage in racial discrimination should expect to lose that status,” he noted.

The proposal must still complete the regulatory process before becoming a final rule.

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