The One Big Beautiful Bill Act (OBBB) delivers a clear win for families and for the conservative movement by expanding school choice.
The expansion of the 529 program empowers parents to save more effectively for their children’s education. The OBBB also creates a federal tax credit for donations to scholarship granting organizations (SGOs). While the design of the new credit raises concerns about the potential for federal overreach in education policy, the overall wins for school choice in the OBBB are worth celebrating.
Expanding 529 Accounts Strengthens School Choice
The OBBB strengthens 529 education savings plans and gives families more flexibility in how they save for their children’s education. Previously, families could withdraw up to $10,000 per year per student tax-free for K–12 tuition at public, private, or religious schools. There was no limit on withdrawals for college expenses. Qualified expenses included tuition, fees, and books, allowing families to withdraw funds for these purposes without penalty. However, many common education costs, including dual-enrollment program fees and tutoring, were not classified as qualified expenses. Parents wishing to use funds for these purposes had to withdraw the money, pay income tax on the earnings, and incur a 10% penalty.
The OBBB addresses these gaps by doubling the withdrawal limit for K-12 education to $20,000 per student beginning next calendar year and expanding the definition of qualified expenses. The definition of qualified expenses now includes curriculum and instructional materials, online learning resources, qualified tutoring, standardized test fees and preparation, dual-enrollment program fees, and educational therapies for students with disabilities. This expansion, included in Sec. 70413, was based on the Student Empowerment Act introduced by Sen. Ted Cruz (R-TX) and Rep. Kevin Hern (R-OK-01).
For students continuing education after high school, the OBBB expands 529 accounts to include postsecondary credentialing programs in the list of eligible expenses. This shift allows students to use the funds for tuition, fees, books, equipment, and testing requirements for apprenticeship and trade programs included as part of the Workforce Innovation and Opportunity Act. By broadening both the uses and the limits of 529 accounts, they transform from a primarily college-focused savings vehicle into an investment tool that works for all families and students regardless of their education aspirations.
The broadened definition of qualified expenses also makes the 529 accounts more adaptable for different types of education. Many states classify homeschool arrangements as private education. The OBBB’s language allows education savings to follow a student into multiple classroom settings. Families using hybrid schedules, traditional homeschooling, or specialized education services can now use a 529 account to support their education choices. This broader definition also has the potential to expand access for students with disabilities to education opportunities that encourage self-sufficiency and reduce dependence on welfare.
Opportunity and Risks in Federal Scholarship Tax Credits
The OBBB creates a new federal tax credit for contributions to nonprofit scholarship granting organizations (SGOs) that provide K–12 education scholarships. This policy in Sec. 70411 is a modified version of the Educational Choice for Children Act (introduced by Sen. Bill Cassidy (R-LA) and Rep. Adrian Smith (R-NE-03).
The new credit allows individual taxpayers to offset up to $1,700 of their federal tax liability by making eligible donations to SGOs. The SGOs take those funds and distribute them to qualified students in the form of scholarships. Qualified students are those who are part of a household which does not earn more than 300% of the median gross income and who are eligible to enroll in a public K-12 school.
The idea for this new federal tax credit likely came from the growth in similar state-based education scholarship tax credits. Eighteen states operate varying forms of tax credit scholarship programs, which have assisted more than 200,000 students. In those programs, specified groups of individuals and businesses can contribute funds to SGOs so that families can receive scholarships to cover private school tuition. Individuals donating to SGOs receive varying levels of state tax credits in return for their donation. For example, some refund 100% of donations while others are more limited, such as a 65% credit.
The new federal tax credit scholarship program created by the OBBB will offer federal tax credits to individuals who contribute to SGOs. SGOs may use the funding to provide private school tuition and private education expenses. Contributions used for this credit may not also be claimed as a charitable deduction and, if a taxpayer also receives a state-level credit for the same donation, the federal credit must be reduced accordingly. Any unused portions of the federal tax credit can be carried forward for up to five years and applied to future tax filings.
Only SGOs located in states that opt into the program can qualify for the credit, and those organizations must meet strict requirements. They must award scholarships to at least 10 students who do not all attend the same school, spend at least 90% of their income on scholarships, and grant scholarships solely for qualified elementary or secondary education expenses. These criteria are intended to ensure the credit supports legitimate educational scholarships, not unrelated programs.
However, this tax credit does have potential risks. The OBBB grants the Secretary of the Treasury oversight of SGOs and authority to determine what constitutes a valid scholarship program. The final version of the law did not include language originally passed by the House that would have prohibited any federal, state, or local government entity authority “to mandate, direct, or control any aspect” of SGOs or any private or religious schools. Such “hands off” language is typically included in state-level tax credit scholarship programs. The lack of these protections potentially opens the door for future administrations hostile to school choice to exert influence over SGOs or private and religious schools. Even if the current design is neutral, a later Congress can rewrite eligibility, redefine participating schools or SGOs, and condition participation in ways that compromise the original intent of the program.
Furthermore, education is fundamentally a state policy issue. Conservatives have historically resisted federal attempts to steer state and local school education policy. A federal tax credit for scholarship entities has the potential to become another lever to push states toward policies that reflect the political moment and are not always conservative.
Celebrating Progress, Preparing for the Next Steps
Conservative policymakers can and should claim a real victory in the 529 expansion, which advances school choice and encourages saving for education. Families want both the freedom to save and the ability to choose what fits their children’s needs, and the 529 reforms deliver on that goal.
The OBBB also advances school choice through scholarships, but poses a risk. While the tax credit scholarship can provide needed resources to students seeing alternative education options, its structure can easily be repurposed by future Congresses.
The task ahead is to safeguard the OBBB’s school choice victories by strengthening what works and closing the door for future federal overreach.
