AASCU Federal Highlights – October 2026

Senators Send Letter to Treasury/IRS on Private Higher Education Tax Exemption

On Monday, a group of Senators urged the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) to withdraw a proposed rule that could affect the tax-exempt status of approximately 18,000 private K-12 schools, trade schools, colleges, and universities. In their letter, Sens. Raphael Warnock (D-GA), Ron Wyden (D-OR), and Bernie Sanders (I-VT) argued that the proposal would expand the government's authority to determine whether educational institutions' policies violate "fundamental public policy." The senators argued that the proposal exceeds existing legal standards and could threaten programs designed to expand educational access. They also raised concerns about potential effects on admissions, scholarships, student loans, athletics, and academic assistance programs.

The proposed rule, issued in September, would make private schools ineligible for tax-exempt status if they discriminate based on race, color, or national or ethnic origin. It would also treat race-based actions intended to remedy past discrimination or advance diversity-related objectives as discrimination, regardless of their intent or legality. Treasury and the IRS estimate that the proposal could affect approximately 750,000 students who may qualify for scholarships allocated based on racial, ethnic, or national identity. The senators requested responses to nine oversight questions by November 20. If finalized, the rule would apply to taxable years beginning after May 31, 2027.

Although the current proposal would only apply to private institutions, it could signal how federal agencies may interpret race-conscious programs across all of higher education. AASCU is continuing to monitor the issue.