The program, which launches in many states in January 2027, isn’t just for private schools. Public school leaders can also leverage the Education Freedom Tax Credit to support their students.
Insights from Sarah Raybon, ClassWallet’s Vice President of Business Development
As public school leaders consider opportunities through the Federal Scholarship Tax Credit, interest – and questions – are growing. With more than 15 years of experience with state tax credit and education savings account (ESA) programs, and a background both inside state agencies and as an ESA parent, ClassWallet’s Sarah Raybon offers a unique perspective rooted in policy fluency, implementation expertise, and deep understanding of the impact on families navigating these programs.
A Federal Program with ESA DNA but a Very Different Funding Model
The Federal Scholarship Tax Credit, now known as the Education Freedom Tax Credit (EFTC), marks the first permanent federal school choice initiative in U.S. history. Passed by the House in May 2025 and signed into law in July 2025 as part of a broader budget package, the EFTC created a federal tax credit framework to expand K-12 educational options. Instead of federal funding, the program relies on private donations to approved Scholarship Granting Organizations (SGOs), which then award scholarships for eligible expenses such as private school tuition, tutoring, curriculum, and special education services.
Beginning in January 2027, taxpayers will be able to receive a dollar-for-dollar federal tax credit (up to $1,700) for contributions to participating SGOs. The U.S. Treasury Department is currently developing the regulations needed to implement the program, including rules around state SGO certification, as well as reporting and recordkeeping requirements. For program administrators, this rulemaking period will be critical, as Treasury’s guidance will determine how the EFTC operates nationally and how it aligns with any existing state programs.
Several key features:
- States need to opt-in to participate (as of May 2026, 26 states have opted in)
- EFTC scholarships can be combined or "stacked" with state scholarship programs
- Scholarships can support students in public schools, as well as those in private schools
SGO Requirements: Familiar, but with New Compliance Expectations
According to the FSTC Congressional report, to participate, SGOs must:
- Be a 501(c)(3) nonprofit
- Have a primary mission of awarding K-12 scholarships
- Support multiple students and multiple schools
- Cap administrative costs at 10 percent
Unlocking Opportunities for Students in Public Schools
A key distinction: While ESA and tax credit scholarship programs are often viewed through the lens of private school choice, the EFTC contains critical provisions that make it a powerful tool for all students, including those attending public schools.
Allowable Uses Offer Flexibility for Public School Students
- Tutoring
- Special education services
- Books and educational materials
- Technology
Case Study: State Investment In Arkansas Is a Model for What Is Possible through EFTC
One example of this in practice is the Arkansas Literacy Tutoring Grant program (LTG), a key initiative of the LEARNS Act that demonstrates the potential of strategically directing available resources toward individualized student instruction and support in public schools. This program, administered by the Arkansas Department of Education with support from districts, offers families of students in grades K-3 who are struggling to meet grade-level reading standards a $1,500 state-funded, per student grant. Using ClassWallet’s digital wallet technology, LTG effectively connects these families with vetted, effective tutors to accelerate literacy growth.
Through EFTC, public schools can collaborate with SGOs to implement programs such as LTG, providing critical opportunities to struggling students and helping to close achievement gaps.
What Now?
As we approach 2027, stakeholders should consider focusing on:
- Marketing and outreach strategies about EFTC
- Scalable eligibility and application systems
- Donation tracking mechanisms
- Transparent, auditable reporting
How ClassWallet Supports the Future of Tax Credit Scholarships
ClassWallet has already implemented scholarship programs supporting public school students in Arkansas, Idaho, Texas, and Virginia.
Our platform provides:
- Compliance focused spending controls
- Centralized reporting
- A seamless, scalable family experience
- Tools built to meet both state and federal compliance requirements
Ready to Prepare for EFTC or Discuss What Might Be Possible? Let’s Talk.
If you’re a school leader with questions about how EFTC might benefit your students, reach out to our team!
Readers can learn more about the EFTC here.
This article is for informational purposes only and does not constitute legal advice. Readers should not act or refrain from acting based solely on the information contained herein without seeking professional legal counsel. For additional information regarding this topic, please refer to the Congressional Research Service report available at https://www.congress.gov/crs-product/R48724.