Indiana readies for federal choice scholarship program in 2027
Indiana is preparing to add a new federal layer to its already expansive school choice system, with a tax credit program that could steer millions of privately donated dollars toward tuition, tutoring, transportation, and other education expenses beginning in 2027 – including for students in public schools.
The “Education Freedom Tax Credit Scholarship” (EFTC), created by the One Big Beautiful Bill Act enacted in 2025, takes effect January 1, 2027. Individual taxpayers can receive a dollar-for-dollar federal income tax credit of up to $1,700 for qualified cash contributions to a Scholarship Granting Organization (SGO), and the U.S. Department of Treasury’s newly proposed regulations allow married couples filing jointly to claim as much as $3,400 if each spouse makes qualifying contributions.
The credit is nonrefundable, although unused amounts can be carried forward for up to five years.
Indiana opted into the federal program earlier this year with five initial SGOs within the state. The federal credit is more than just another way to subsidize private school tuition, as the larger impact is derived from the breadth of students and expenses that can participate, compared to Indiana’s existing school choice programs.
The Institute for Quality Education, the state’s first and largest SGO, stands ready to serve as the primary organization dispersing these scholarships. Betsy Wiley, president and CEO of IQE, expects the organization to serve as an Indiana-only SGO under the federal program, building on its experience administering the state’s existing Tax Credit Scholarship Program.
“As the SGO, you’re basically just literally the administrator of the program. You’re out soliciting the donations and working with the donors to make sure they get their tax credit, and then you’re awarding scholarships to qualified individuals on the other side,” Wiley explains.
Five Indiana-based SGOs are on the state’s initial list of participants: IQE, the Sagamore Institute, Lutheran Scholarship Granting Organization in Fort Wayne, School Scholarship Granting Organization of Northeast Indiana, and the Legacy Foundation in Lake County. The latter four primarily work with private and religious schools in the state.
IQE, in its role as an SGO, will have substantial responsibility over how the program develops in Indiana. The organization must attract taxpayers willing to contribute, verify student eligibility, determine scholarship awards and permissible expenses, work with schools and education providers, and meet federal spending and reporting requirements, all for a program whose size ultimately depends on how much money donors choose to put into it.
Indiana is already familiar with scholarship granting organizations, primarily for private schools, but the federal version reaches farther than the state program in several ways.
Indiana’s Tax Credit Scholarship provides donors a 50% state tax credit and supports eligible students attending participating private schools, with scholarship dollars generally directed toward tuition and fees. The new federal program carries a 100% tax credit up to the federal limit and may be used alongside Indiana’s Choice Scholarship, Education Scholarship Account (ESA), Career Scholarship Account (CSA), and state Tax Credit Scholarship when the requirements of each program are met.
Wiley views the inclusion of students outside private schools as one of the federal program’s biggest differences, and benefit, for Indiana.
“One of the most exciting things about the EFTC program is that it is available specifically … Congress was very clear about public school students, and therefore charter school students, as well as nonpublic school students, and in Indiana homeschool students can participate in the program,” Wiley tells your favorite education newsletter.
She points out “that’s very different from our existing state tax credit program that is only for private school tuition and fees.”
IQE estimates the income ceiling – 300% of area median income – puts roughly 90% of Indiana students within the program’s potential reach. The U.S. Treasury and the U.S. Department of Education estimate about 95% of children nationally live in households that satisfy the income limitation, although eligibility does not guarantee that a student receives money because awards depend on donations, available SGO funds, and the organization’s decisions.
The proposed federal rules state students are eligible if they can enroll in a public elementary or secondary school and their household’s prior-year income falls at or below 300% of the area median gross income, adjusted for family size.
The mechanics are more complicated than simply giving $1,700 to a family and receiving $1,700 back at tax time.
Federal law prohibits a taxpayer from earmarking a contribution for a particular student. The donor instead contributes to an approved SGO, which controls the scholarship process. Federal rules require SGOs to keep qualified contributions separately, spend at least 90% on scholarships, and provide awards to at least 10 students who do not all attend the same school.
IQE plans to allow donors to identify a school or an expense category they want their contribution to support. Examples of categories include tuition, tutoring, before- and after-school care, or the area of greatest student need, and Wiley describes a system in which those preferences are tracked without allowing money to follow a named child.
“A donor could say, ‘I want it to go to support students that are doing high dosage tutoring,’ or ‘I want it to go support students that go to a particular school corporation,’ and then we’ll put that in a segregated account and make sure that their intentions are met as the administrator of the program,” Wiley explains.
Those preferences are not absolute. Wiley notes that federal spending requirements mean IQE may have to redirect money if a donor’s chosen category cannot absorb it quickly enough. Under the guidelines, 90% of money raised in 2027 must be distributed in scholarships by the end of 2028.
“If we have to make adjustments from a donor’s wishes in order to get the money out and stay in compliance, we’ll do that,” Wiley adds, although she called that possibility “highly unlikely.”
Such an arrangement could make schools important fundraisers for the federal program, even though they are not receiving a conventional federal appropriation. A school that persuades parents, alumni, grandparents, or other supporters to contribute through an SGO and designate that school could create a pool of scholarship money benefiting eligible students there, opening a new source of support for both private schools accustomed to scholarship fundraising and traditional public districts that generally have not worked within an SGO structure.
The public school component may become one of the more consequential pieces of the Indiana rollout.
Tutoring, transportation, instructional materials and technology, before- and after-school programs, and services for students with disabilities are among potential scholarship expenses . . . particularly for traditional public schools or charter schools, which don’t charge families tuition. Work-based learning could also become a scholarship expense as well.
For a private school family, the most obvious use remains tuition. For a student in a traditional public school, the scholarship could instead pay for an eligible tutoring service, transportation, technology, or another educational support that the school or family otherwise might struggle to afford.
Wiley has spent recent months meeting with public school superintendents and school business officials to explore where the money could fit into their systems, recognizing that both districts and IQE are moving into unfamiliar territory.
“It’s a learning curve I think for both of us,” Wiley divulges. For public districts, “it’s not something they’ve been able to really participate a ton in in the past,” while IQE must think beyond tuition and fees and work through a much broader menu of expenses.
She points to those categories of technology, transportation, before- and after-school care, and high-dosage tutoring as relatively straightforward entry points.
“If it’s not easy, right? It’s gonna not get used like it should,” Wiley observes. “I think if we can find a couple of expense categories that are straightforward … they get used to it. And I think that kind of opens up the, you know, well, what about this kind of opportunity?”
The federal structure also means those opportunities do not necessarily depend on Indiana donors. A taxpayer living in another state can contribute to an SGO in a participating state, even when the donor’s own state has not joined the program; only the students receiving scholarships must reside in a participating state.
IQE has already taken advantage of that by advertising in Illinois, which we informed you about in our most recent issue. Illinois has not opted into the program, as have most primarily Democratic-led states. So, IQE came up with the idea to inform families in the state, via a billboard, that they can donate to support Indiana students and still receive the federal tax credit.
Wiley hopes Illinois residents with ties to Indiana schools may contribute across the border.
“As a taxpayer, you can be anywhere,” she asserts. “If you’ve got grandparents, you know, family members, whatever, alumni from your school in another state, it’s going to be important for them to understand they can still give and support students and still get the tax credit.”
Getting taxpayers to understand that proposition may determine whether the federal program becomes a major new source of education funding or remains relatively small in its opening years.
IQE is approaching employers, private schools, traditional public districts, charter schools and microschools as it builds both sides of the program – donors willing to supply money and schools or providers capable of turning it into eligible scholarships. Wiley expects the organization to add digital advertising as January approaches, but much of the early work involves direct outreach.
“We’re working with honestly anyone and everyone we can get with,” Wiley explains. On the donor side, that includes large employers whose workers could use the credit to support Indiana students; on the education side, IQE is reaching beyond its longtime private school partners to public school superintendents, charter operators, and microschools.
The organization’s technology partner is also developing school-specific QR codes, allowing a school to promote a link that takes prospective donors directly to an IQE contribution page with that school already identified as the donor’s preferred destination. “Earned media and anyone and everyone we can get in front of is what we’re trying to do,” Wiley states.
IQE has not yet pushed the federal program as heavily as Wiley expects it eventually will, partly because the organization does not want potential donors confusing it with Indiana’s existing scholarship tax credit during the busiest giving months at the end of 2026. Contributions made before January 1 cannot qualify for the federal credit, as donations can’t be formally collected until January 1, 2027.
“We’ve gotten some (pledges), but I wouldn’t say a lot,” is how Wiley describes the early donor interest.
IQE instead is collecting “expressions of interest,” so it can contact potential contributors once the federal program goes live and begin converting donations into scholarships.
The organization has set a first-year fundraising goal of $10 million, although Wiley readily acknowledges that there is little experience on which to base such an estimate, “I have no idea if we’re going to be able to do that or not.”
Wiley also expects skepticism precisely because the benefit appears unusually generous.
“The program does, being 100% tax credit, does have a little bit of an almost too good to be true kind of sense to donors,” she notes, comparing it with IQE’s experience explaining Indiana’s 50% state credit. “I think it’ll scale once people kind of try it and realize it’s real and it’s easy. But you know they might be a little hesitant at first.”
Nationally, the Education Freedom Tax Credit is generating the same argument that has long followed voucher and scholarship programs at the state level.
Supporters portray the program as additional education money that gives families more control over where and how their children learn, including families whose children remain in public schools. The Trump Administration estimates that by 2030 more than 11 million donors could contribute close to $26 billion annually through 600 to 700 SGOs, potentially supporting millions of scholarships, although the actual number and size of awards will depend on taxpayer participation and SGO decisions.
Critics counter that a federal tax credit still represents forgone federal revenue and could disproportionately support private and religious education, particularly because the private school sector already has established scholarship organizations and fundraising networks. If private schools and existing SGOs are more effective at informing families, soliciting donors, and developing systems for eligible expenses, they could capture a disproportionate share of the scholarships even though public-school students qualify.
Some public school and civil rights advocates have also raised questions nationally about academic accountability, civil rights protections, equitable access, and whether the federal rules afford states sufficient authority to impose additional safeguards.
Education Week’s tracker shows 31 states have either opted into the scholarship program or indicated they plan to participate, a group dominated by Republican-led states but not limited to them.
Some states are also raising concerns about how little authority they may have once they participate. The federal law establishes the basic SGO and scholarship requirements, and the proposed rules limit the extent to which states can impose additional restrictions beyond the standards set by Congress.
New York Gov. Kathy Hochul (D-NY) has indicated she intends to participate, making New York one of the relatively few Democratic-led states moving toward the program. But a point of contention from her administration is the federal rules over how much control states will retain once they opt in.
Indiana enters from a different starting point than many states. Governor Mike Braun (R) opted into the federal program early in January, and state lawmakers subsequently placed responsibility for participation and the qualifying SGO list with the Indiana Department of Education. Indiana is also already operating universal Choice Scholarship eligibility for the 2026-27 school year, and it has long operated its own tax credit scholarship program, along with ESAs and CSAs.
The feds released proposed and temporary rules October 1, giving states and SGOs a framework for the January launch, but implementation still requires new systems for income verification, expense approval, donor documentation, and communication with school sectors that have little experience operating through scholarship-granting organizations.
IQE hired Tina Kaetzel, who previously administered Indiana’s ESA and CSA programs under the Office of the State Treasurer, to run its federal effort, and Wiley believes the organization’s years administering the state tax credit scholarship give it a head start.
Income verification, however, will be considerably more extensive than what IQE has handled in its existing program, prompting discussions with state agencies and other partners about how to streamline the process.
Whether the federal credit becomes a $10 million scholarship program for IQE, grows well beyond that, or takes several years to gain traction will depend not only on the tax incentive but on whether taxpayers, schools, and families understand a funding system that is neither a traditional charitable donation nor a conventional government scholarship. “There are just a lot of people to educate on it,” Wiley reflects.
The first year should also show whether the federal credit is used mostly for private school tuition or whether public and charter school students make meaningful use of it for tutoring, transportation, technology, and other eligible expenses.