FSTC Reality Check 3: Before the Money Arrives — The Financial-Aid Decisions Schools Need to Make Now
For the first two parts of this series, we have focused on questions.
How might different Scholarship Granting Organizations make different award decisions?
What happens when outside scholarship dollars overlap with a school's existing financial aid?
And why does being eligible for an FSTC scholarship not necessarily mean a family will actually receive one?
Now comes the more practical question: What should schools do about all of this before 2027 arrives?
The Federal Scholarship Tax Credit could provide significant new resources for private-school families. Beginning January 1, 2027, individual taxpayers may claim a federal tax credit of up to $1,700 for qualifying contributions to approved Scholarship Granting Organizations in participating states. As of September 14, 2026, 30 states had made advance elections to participate in the program.
But schools probably should not wait until scholarship dollars begin appearing on family tuition accounts to decide how those dollars fit into their financial-aid programs. The best time to answer those questions is now.
Decide What Outside Scholarships Will Do to School Aid
This may be the first policy question a school should settle.
Suppose your school determines that a family demonstrates $8,000 in financial need and awards $8,000 in institutional assistance. Later, the family receives a $4,000 FSTC-funded scholarship from an SGO.
What happens?
Does the school reduce its award from $8,000 to $4,000?
Does the family keep both awards and receive $12,000 in total assistance?
Does the school reduce only a portion of its aid?
Does the answer change depending upon whether the school's assistance was specifically designated as need-based?
There may be legitimate reasons for choosing different approaches. The important thing is that the school chooses an approach deliberately rather than discovering its policy one family at a time.
Otherwise, two families with essentially the same financial capacity could end up receiving very different total assistance simply because one obtained an outside scholarship and another did not.
That can quickly become difficult to explain.
Define What Your School Means by Financial Need
FSTC makes another question especially important: What does your school actually mean when it says a family has financial need?
Federal eligibility for an FSTC scholarship is based in part on household income and family size. Section 25F generally limits eligible students to households at or below 300% of the applicable area median gross income, and SGOs are required to verify income and family size.
But falling beneath an income ceiling does not tell a school everything it may want to know about a family's capacity to contribute toward tuition.
Two households can have similar incomes and very different reasonable financial obligations.
Family size matters.
Housing costs matter.
Childcare may matter.
Necessary medical expenses may matter.
Debt circumstances may matter.
Other resources available to the household may matter.
Schools that already use a consistent financial-aid methodology should think carefully before allowing FSTC eligibility itself to become their definition of financial need.
An FSTC scholarship may be an important resource.
It does not necessarily replace a school's own need-analysis process.
Determine the Order in Which Assistance Will Be Applied
Schools should also establish what might be called the order of assistance. For example, a school's policy might determine need first, apply outside scholarships second, and then use institutional aid to fill some or all of the remaining demonstrated need.
Another school may structure its process differently.
But someone eventually has to answer this question: Which dollars come first?
That sounds administrative until real money is involved.
Suppose tuition is $12,000. A school's analysis determines that the family can reasonably contribute $5,000, leaving $7,000 in demonstrated need. The family then receives a $3,000 SGO scholarship.
There are several ways the school could respond.
It could consider the $3,000 as meeting part of the $7,000 need and provide another $4,000.
It could provide its original $7,000 award and allow the SGO scholarship to reduce the family's $5,000 expected contribution.
Or it could adopt another method.
Those choices represent different financial-aid philosophies. The important point is not that every school must choose the same answer. It is that the answer should probably be established before a family asks.
Decide How You Will Treat Families Who Do Not Receive an SGO Award
Imagine two families whose financial circumstances are essentially the same. Your school determines that each demonstrates $6,000 in need.
Family A receives a $4,000 FSTC scholarship.
Family B applies but receives nothing because its SGO does not have sufficient funds available.
Should Family B receive more institutional aid from the school? Should Family A receive less? Should both families ultimately receive approximately the same total assistance? Or is the outside scholarship treated completely independently from school aid?
Schools may reach different conclusions. But whatever a school decides will communicate something about its underlying philosophy.
If your school has historically tried to evaluate families according to consistent financial criteria, significantly different net tuition obligations among similarly situated families may be something school leaders want to consider deliberately.
Know More About an SGO Than Its Name
FSTC may produce a growing number of organizations interested in serving schools and families.
That makes due diligence important.
Federal law establishes requirements an organization must meet to qualify as an SGO, including its charitable status, scholarship expenditures, income verification responsibilities, priority rules, and other requirements. Participating states must provide the IRS with lists of qualifying SGOs before contributions to those organizations can qualify for the federal credit.
Federal qualification alone does not tell a school everything it may want to know about working with an organization.
Ask how scholarship amounts will be determined.
Ask what happens when applications exceed available funding.
Ask what information families will be required to provide.
Ask how quickly awards will be communicated.
Ask how scholarship funds will be disbursed and credited toward eligible educational expenses.
Ask how corrections, withdrawals, transfers, or midyear enrollment changes will be handled.
Ask how renewals will work.
Ask how the SGO will coordinate with existing school assistance.
And perhaps most importantly, ask what happens when there simply is not enough money for every eligible applicant.
Those operational questions could matter almost as much as the federal rules themselves.
Decide Who Will Communicate What to Families
Schools should also determine who owns the message. Admissions? Business office? Financial-aid staff? Development? School leadership?
If each department explains FSTC differently, families may receive very different impressions about what is available.
A prospective family might hear, “You should qualify for the new federal scholarship.”
The business office may mean, “You appear to meet the federal eligibility requirements.”
The family may hear, “We are going to receive enough scholarship money to afford this school.”
Those are not the same message. Schools should develop careful language that separates potential eligibility from an actual award. Until a scholarship has been approved and an amount established, do not present it as guaranteed assistance.
That is particularly important when families are making enrollment decisions, signing tuition agreements, or deciding whether they can afford to remain at the school.
Don't Build a Budget Around Money That Hasn't Arrived
This may be one of the most important pieces to remember.
FSTC may eventually generate substantial scholarship funding. But the program depends upon taxpayers making voluntary qualifying contributions to SGOs.
The federal credit is intended to encourage those contributions; it does not itself appropriate a fixed scholarship amount to each school or each qualifying student.
Schools should therefore be careful about incorporating anticipated FSTC dollars too aggressively into enrollment or tuition-revenue projections.
An SGO may raise more than expected. It may raise less. Demand may exceed available funds. Donor participation could vary from year to year. Scholarship amounts could vary.
A school might reasonably include FSTC in its planning. But planning around potential scholarship revenue is different from treating that revenue as guaranteed.
Think About What Happens in Year Two
The first year will receive most of the attention.
The second year may reveal some of the harder questions.
Federal law requires SGOs to give priority first to students who received a scholarship from that SGO during the previous school year and then to siblings of scholarship recipients.
That may help provide continuity for families already receiving assistance. But it could also affect the amount available for new applicants.
A school with substantial enrollment growth may discover that many returning students have priority while newly enrolled families compete for whatever resources remain.
Schools should therefore be cautious about describing FSTC as a permanent or predictable source of assistance until they understand how their SGO partners will manage renewals and available funding over several years.
Put Your Policy in Writing
Perhaps the simplest recommendation in this entire series is this: Write it down.
Before FSTC scholarships begin arriving, schools should consider adopting a written policy addressing how outside scholarships interact with school-funded financial assistance.
It does not have to be complicated.
But it should answer the questions families and staff are eventually going to ask.
How are outside scholarships reported?
Do they affect institutional aid?
When are school awards recalculated?
Can total aid exceed demonstrated financial need?
What happens if an outside scholarship arrives after the school has already made its award?
What happens if that scholarship disappears the following year?
Who has authority to make exceptions?
A written policy can help preserve consistency.
It also makes difficult conversations easier because decisions are being made according to an established approach rather than in response to the circumstances of a particular family.
The Regulations Are Still Coming
Schools should also remember that the federal picture is not yet complete.
Treasury announced in June that it expected proposed Section 25F regulations no later than the end of September 2026 and said states, SGOs, and taxpayers would be able to rely upon those proposed regulations for the 2027 tax year.
As of September 20, those proposed regulations have not yet been released.
So, schools should prepare now without pretending every implementation question has already been answered.
Some policies may need adjustment once the proposed regulations are available and SGOs begin publishing their own procedures.
That is fine.
Preparation does not require knowing everything. It requires identifying the decisions that belong to the school and being ready to make them intelligently as additional guidance becomes available.
FSTC Doesn't Replace Your Financial Aid Philosophy
That may be the central point of this three-part series.
FSTC creates a new funding opportunity.
It does not tell your school what your financial-aid philosophy should be.
It does not determine how much a family can reasonably contribute toward tuition.
It does not guarantee equal awards among similarly situated families.
It does not inform your school as to how outside scholarship funds should interact with institutional assistance.
And it most certainly does not remove the school's responsibility to make thoughtful, consistent decisions about the aid dollars it controls.
The opportunity is significant. But so is the need for preparation.
Schools should welcome new resources that can help families access Christian and private education. At the same time, they should protect the consistency and integrity of the financial-aid process they have built.
The question is no longer simply: “How can our families participate in FSTC?”
A better question may be, "When FSTC money begins arriving, will we already know what to do with it?”
Schools that answer that question before 2027 will be in a much stronger position when the first scholarship dollars arrive.
FSTC Reality Check Series
Part 1: The Questions Schools Should Be Asking Now
Part 2: Eligible Doesn't Mean Funded — What the $1,700 Credit Really Does and Doesn't Mean
Part 3: Before the Money Arrives — The Financial-Aid Decisions Schools Need to Make Now
Sources: This article is based on current federal law and guidance regarding Section 25F and the Federal Scholarship Tax Credit, including IRS Notice 2025-70; current IRS Federal Scholarship Tax Credit guidance and the list of states making advance elections for 2027; and the U.S. Treasury Department's June 9, 2026 Preview of Forthcoming Section 25F Guidance.
Note: Treasury and the IRS have announced that proposed Section 25F regulations are expected by the end of September 2026. Some implementation details therefore remain subject to forthcoming guidance. This article reflects the federal framework and guidance available as of September 20, 2026.
