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Federal Tax Credit Aims to Boost Catholic School Enrollment
· Confirmed
In Short: Education leaders say the new federal tax credit could expand access to Catholic schools, potentially easing financial burdens on families.
The Federal Scholarship Tax Credit, also known as the Education Freedom Tax Credit, was signed into law on July 4, 2025, and is designed to incentivize private contributions to K-12 scholarships, benefiting students in public, charter, or private schools, including religious institutions.
According to Sister Dale McDonald, vice president of public policy for the National Catholic Educational Association, the tax credit could have a positive impact on enrollment in Catholic schools.
The tax credit allows individuals to receive a dollar-for-dollar tax credit for donations up to $1,700 per year to scholarship granting organizations (SGOs), which can then award scholarships to K-12 students.
Married couples filing jointly can claim up to $3,400 in tax credit for eligible contributions, increasing the potential funding available to support educational opportunities for America’s children.
The tax credit eligibility extends to students whose prior-year household income is no more than 300% of the area’s median gross income, adjusted for family size.
The National Catholic Educational Association recorded that 6.6% of Catholic school students received Title I services during the 2025-2026 academic year.
The tax credit is part of a broader push for school choice, which has made significant gains since the first program was launched in Wisconsin in 1990.
Catholic education leaders are applauding proposed regulations for the Federal Scholarship Tax Credit, which incentivizes private contributions to K-12 scholarships.
The tax credit is designed to be flexible, allowing parents to give money to a school or diocese, but not to earmark it for a specific child.
The American Catholic Education Fund is partnering with dioceses in Texas, Missouri, South Dakota, South Carolina, and Alaska, as well as dioceses in Montana, Oklahoma, Illinois, and the Archdiocese of Baltimore.
The Archdiocese of Miami is applying to participate in the EFTC through its newly established Catholic Tax Credit Scholarship Fund of South Florida, and the Diocese of Sioux Falls, SD, is also exploring the potential benefits of the new tax credit.
The Education Freedom Tax Credit was enacted in 2025 within the federal budget reconciliation bill.
What this adds
The tax credit could help address the financial challenges posed by inflation, making it harder for middle-class families to afford Catholic school tuition.
The tax credit is designed to be flexible, allowing parents to give money to a school or diocese, but not to earmark it for a specific child.
The tax credit eligibility extends to students whose prior-year household income is no more than 300% of the area’s median gross income, adjusted for family size.
The tax credit could potentially lead to increased contributions to Catholic nonprofits that grant scholarships for K-12 students.
Background
Education leaders say the new federal tax credit could expand access to Catholic schools, potentially easing financial burdens on families.
Sister Dale McDonald, vice president of public policy for the National Catholic Educational Association, expressed hope that the new tax credit would positively impact enrollment.
What's confirmed
- Treasury Department estimates approximately 95% of American children live in households that meet the income limit for the scholarship tax credit.
- 1 — could eventually lead to increased contributions to Catholic nonprofits that grant scholarships for K-12 students.
- The tax credit eligibility extends to students whose prior-year household income is no more than 300% of the area’s median gross income, adjusted for family size.
- Cheeseman, president and CEO of the National Catholic Educational Association, highlighted the confirmation that married couples filing jointly will be able to claim up to $3,400 in tax credit for eligible contributions, increasing the potential funding available to support educational opportunities for America’s children.
What's still developing
- But over the next 60 years, enrollment in those schools plummeted 70% — to currently fewer than 1.7 million students.
- “I represent New Jersey in national conversations about education policy, and I’ve watched other states prepare to seize this opportunity. They know that if New Jersey declines to participate, the tax credit dollars won’t go unclaimed, they’ll flow to states that said ‘yes’,” she explained.