Education Freedom Tax Credit
Expanding Educational Opportunity for New Jersey Families
A new federal program gives states the opportunity to expand educational opportunity for students through privately funded scholarships. The Education Freedom Tax Credit (EFTC) allows taxpayers to receive a federal tax credit for donations that support scholarships for K–12 students.
The program will begin in 2027, but states must choose to participate before families can benefit.
The New Jersey Policy Institute is tracking this opportunity and examining what participation could mean for students, families, and taxpayers in New Jersey.
What Is the Education Freedom Tax Credit?
Expands educational opportunity
The program allows families to access scholarships funded by private donations that can be used for education expenses such as tuition, tutoring, curriculum materials, and specialized services. By helping families afford educational options that may otherwise be out of reach, the program gives parents greater flexibility to meet their child’s individual learning needs.
Encourages private investment in education
Taxpayers receive a federal tax credit for donations made to nonprofit scholarship organizations, creating an incentive for individuals and businesses to support students. This approach leverages private philanthropy to expand educational opportunity without requiring new government spending.
Supports flexible options for working- and middle-class families
Students from households earning up to 300 percent of the area median income may qualify for scholarships. Funds can support a range of learning environments—including private schools, tutoring programs, specialized services for students with disabilities, and homeschooling or hybrid education models—allowing families to choose the educational path that works best for their child.
Why This Matters
For Students: Expands access to scholarships that can help students find the learning environment and support services that best meet their needs.
For Parents: Gives families more flexibility and resources to pursue educational options such as tutoring, specialized services, or schools that are the right fit for their child.
For Taxpayers: Allows New Jersey taxpayers who choose to donate to support scholarships for students in their own state rather than seeing those benefits flow to students elsewhere.
For the Future: Positions New Jersey to participate in a growing national effort to expand educational opportunity through private investment and innovative learning models.
NJPI’s Role
The New Jersey Policy Institute believes the federal Education Freedom Tax Credit presents an important opportunity for New Jersey to consider how new scholarship resources could expand educational opportunity for families. Because the program relies on private donations rather than state spending, it raises important questions about how New Jersey might leverage federal policy to support students without creating new obligations for the state budget.
NJPI’s role is to help inform this conversation. We aim to convene policymakers, educators, parents, and stakeholders to examine what participation could mean for New Jersey and to ensure the discussion around the program is grounded in facts, transparency, and thoughtful policy analysis.
Frequently Asked Questions
No. The Education Freedom Tax Credit does not redirect funding from public schools. Scholarships are funded through voluntary private donations, not through reductions in state education budgets.
No. The program is optional for states. Each state must decide whether to opt into the program before students can receive scholarships funded through it.
No. The federal government does not run schools or administer scholarships under this program. Scholarships are administered by independent nonprofit Scholarship Granting Organizations, not federal agencies.
The program is designed to prioritize low- and middle-income families. Students must generally come from households earning no more than 300% of the area median income, which helps target scholarships toward families who may need additional financial support
Yes. Scholarship Granting Organizations must meet federal requirements and are required to direct the vast majority of donations toward student scholarships, rather than administrative costs.
States must opt into the program before Scholarship Granting Organizations in that state can begin receiving donations that qualify for the federal tax credit.
Because the federal tax credit becomes available beginning in tax year 2027, states that want their residents to participate when the program launches will likely need to opt in during 2026.
Opting in earlier allows time for states to certify nonprofit scholarship organizations and ensure the program is ready for families and donors when the tax credit becomes available.
As of early 2026, more than 20 states have opted into the federal Education Freedom Tax Credit program, allowing families in those states to benefit when the program launches in 2027.
An up to date tracker can be found here via the Invest in Education Coalition
Join Us
Accountability is a shared responsibility. NJPI is committed to working collaboratively with all willing partners to bring fairness, transparency, and informed policy discussion back to New Jersey’s public life.
We encourage policymakers, stakeholders, and interested citizens to download the NJPI fact sheet on the Education Freedom Tax Credit and share it with others to help advance a thoughtful conversation about how this opportunity could impact students, families, and taxpayers in New Jersey.
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