FSTC Reality Check, Part 1 of 3

SchoolRight
3 days ago
5 min read

The Questions Schools Should Be Asking Now

By now, most private-school leaders have probably heard the basic explanation of the Federal Scholarship Tax Credit. Beginning in 2027, qualifying taxpayers may receive a federal tax credit of up to $1,700 for contributions to approved Scholarship Granting Organizations, or SGOs, which will use those funds to provide scholarships for eligible K–12 students.

That part is fairly straightforward.

The more interesting questions begin after that.

FSTC may become a significant resource for private education, but schools should be careful not to assume that every SGO, every scholarship, or every family's experience will look the same. Treasury and the IRS are still developing the detailed regulations, with proposed rules expected before the program begins in January 2027.

So rather than asking only, “How do we participate?” school leaders may want to begin asking some harder questions.

Could two similar families at our school receive very different scholarships?

Potentially, yes.

Federal law establishes important requirements for SGOs. For example, an SGO must verify household income and family size, limit scholarships to eligible students, give priority first to students who received one of its scholarships the previous year and then to siblings of its scholarship recipients, and meet other federal requirements.

What the federal framework does not currently provide is one national formula telling every SGO exactly how much scholarship to give each eligible family.

That creates an issue schools should at least consider.

Suppose two families at the same school have similar incomes, similar tuition obligations, and similar financial circumstances. One applies through SGO A and another through SGO B. If the two organizations have different resources, priorities, or methods for determining awards, those families could potentially receive different amounts.

That doesn't necessarily mean anything improper has occurred. It may simply be the result of two different scholarship organizations administering their resources differently.

But from the school's perspective, it could create a difficult question:

How do we maintain a consistent financial-aid philosophy when outside organizations are making scholarship decisions using criteria we may not control or use for non-SGO awards?

Should our school work primarily with one SGO?

That may eventually be worth considering, although it is too early to suggest that every school should adopt a one-SGO policy.

The federal program clearly anticipates multiple SGOs, including organizations that may operate in more than one participating state. Additionally, not all states will be a part of the initial rollout of the NSTC program.

Still, there could be advantages to developing a primary or preferred relationship with an SGO whose procedures a school understands.

A school might want to know how that organization determines scholarship amounts, how it handles situations when requests exceed available funds, what documentation families must provide, how renewals are treated, and how its scholarships coordinate with aid already being provided by the school.

Consistency may become particularly important for schools with substantial need-based aid programs.

Using several SGOs may increase opportunities for families. On the other hand, it could also introduce multiple application processes, different award practices, different deadlines, and potentially very different outcomes.

There isn't necessarily a right answer yet. But there is certainly a question worth asking.

What happens when an FSTC scholarship and school financial aid overlap?

This may become one of the more important practical issues for schools.

Suppose your existing financial-aid process determines that a family needs $7,000 in assistance. Your school provides $7,000 of institutional aid, and later the family receives a $3,000 scholarship through an SGO.

What happens next?

Does the school's aid decline to $4,000?

Does the family receive the entire $3,000 in addition to the school's $7,000?

Does some combination apply?

What if another family with essentially the same financial circumstances does not receive an SGO scholarship?

These aren't really FSTC eligibility questions. They are school financial-aid policy questions, and schools may want to answer them before the first scholarships arrive.

Otherwise, outside awards could unintentionally cause similar families to receive significantly different total assistance simply because one happened to secure an outside scholarship.

Could families apply through several SGOs?

This is another area worth watching.

Treasury has already identified the possibility of duplicate scholarship awards as an implementation concern. Its June 2026 preview indicates that participating states will be expected to take reasonable steps to prevent the same student from receiving multiple awards for the same expense. Treasury even suggested that one possible safeguard could involve families certifying that another scholarship has not already paid that expense.

That tells us something important even before the final rules arrive: coordination is going to matter.

A school may eventually have students receiving assistance from different SGOs, perhaps even students who have applied to more than one. Schools will need to understand what information they are expected to provide and how scholarships will be coordinated with tuition accounts and other assistance.

How should we evaluate an SGO?

Schools may naturally gravitate toward whichever organization first approaches them about FSTC.

That may not be the best reason to choose one.

Before developing an SGO relationship, school leaders may want answers to questions such as:

How will scholarship amounts be determined?
What happens when there is not enough money for every eligible applicant?
Is financial need considered beyond the federal eligibility threshold?
How are returning students treated?
How predictable are renewals?
How will the SGO communicate with the school?
What documentation will be expected from families?
How will duplicate awards be prevented?
How transparent will the organization be about available scholarship funds and its award process?

Federal law and forthcoming regulations will provide a common framework, but the actual experience of working with an SGO may still matter considerably.

Perhaps the Bigger Question: Who Owns Your Financial-Aid Philosophy?

FSTC may bring welcome new resources into private education. But outside scholarship money can also complicate a financial-aid system if a school hasn't decided how those resources fit into its own philosophy.

If your school has historically tried to evaluate families consistently and distribute limited aid according to demonstrated need, you probably don't want that consistency accidentally replaced by whichever outside scholarship a particular family happens to find.

That doesn't mean schools should control FSTC scholarships. They won't.

It means schools should determine how those scholarships will interact with the aid decisions the school does control. That may ultimately be one of the most important preparations a school can make before 2027.

The FSTC conversation has understandably focused on how much new scholarship money might become available. The next stage of the conversation should probably include another question:

What happens once that money begins arriving—and not necessarily equally for every family?

That is where the real financial-aid discussion may begin.

Next in the FSTC Reality Check series: Part 2: Eligible Doesn't Mean Funded — What the $1,700 Credit Really Does and Doesn't Mean

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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, which outlines statutory SGO requirements, student eligibility, priority rules, and state certification requirements; the U.S. Treasury Department’s June 9, 2026 Preview of Forthcoming Section 25F Guidance, which discusses expected proposed regulations, multistate SGOs, school eligibility, and income verification; and current IRS guidance on the Working Families Tax Cuts.

Note: Some FSTC implementation details remain subject to forthcoming Treasury and IRS regulations. The analysis and questions raised in this article reflect the federal framework and guidance available as of August 2026.