For now, North Carolina has opted into the new federal voucher program because state lawmakers forced through legislation (HB 87) that requires Governor Stein to opt in. The federal law (budget bill signed in summer 2025 – H.R.1, a.k.a. Big Beautiful Bill) specified that the governor of each state—or another entity designated under state law—would make the decision each year, and the NCGA decided to take over as decisionmaker.
Each governor—or another entity designated under state law—has to opt in on a yearly basis, so NC lawmakers may make a different decision next year after the November election and after they have more information about the program.
The first year of the federal voucher program begins January 2027; final regulations are being developed by the US Treasury Department. Once the draft regulations are released (likely in September 2026), federal law requires a public comment period of at least 30 days before the final regulations are updated and released.
The program seems simple, but both its structure and the language used to describe how it will function obscure several ways taxpayers could lose.
Federal Voucher Program: Basic Steps
- Individual gives up to $1,700 to a Scholarship Granting Organization (SGO).
- Individual gets a dollar-for-dollar tax credit on their federal taxes for that year. In other words, what they owe the federal government is reduced by up to $1,700.
- This represents a LOSS to the federal treasury. It is not free money.
- SGO can keep up to 10% of the money for “administrative” purposes.
- The federal law does not allow flexibility for states to regulate which SGOs are approved to operate in their state.
- Families apply to the SGO for vouchers. Currently, there are few regulations guiding how the SGO can select voucher recipients (e.g., no antidiscrimination rules).
- SGO uses at least 90% of the funds to award vouchers to families for qualified expenses.
- Each SGO must give money to 10 or more students who do not attend the same school. There is no limit on how much the SGO can give.
These basic steps raise many concerning issues. First, contrary to how the program is described in legislation, the money flowing to the SGO is not a “donation” or a “charitable contribution.” For people who pay at least $1700 in federal taxes, the money sent to the SGO is simply a money redirect. Money that is earmarked for the federal treasury is sent to the SGO instead.
A few years ago, the Supreme Court of Kentucky saw through the smoke and mirrors of their state’s voucher tax credit program and struck down a similar voucher plan, stating that, “[t]he substance of this bill is obvious. The Commonwealth may not be sending tax revenues directly to fund nonpublic school tuition (or other nonpublic school costs), but it most assuredly is raising a ‘sum . . . for education other than in common schools’ by forgiving a taxpayer’s tax liability to the Commonwealth” when they contribute money to fund vouchers.
Second, the federal voucher tax credit will enrich SGOs while reducing funds going to help students. We can expect SGOs to pop up around the country as people try to cash in on the 10% “administrative” fee. Billionaire Betsy DeVos tried to pass a federal voucher program during President Trump’s first term when she was Secretary of Education. Her organization American Federation for Children (AFC) has already set up a national SGO that has a multimillion-dollar marketing budget.
Third, despite voucher proponents’ efforts to highlight possible benefits for public school students, there is very little room in the law for real benefit for public schools or students. State law prohibits public schools from charging for most services, so if an SGO chooses to give voucher money to a public-school student, the options will be limited. Possible uses could be extracurricular activities (e.g., field trips) or privately run services such as tutoring, counseling, or other educational programs.
In contrast, the federal voucher program can be used to pay tuition at private schools. Because there is no limit on the size of a voucher, an SGO could pay full tuition for students at elite private schools. In North Carolina, many private schools charge $30,000+ annually.
The voucher program could also incentivize public schools to charge for services they currently provide to students free of charge, setting up a dangerous trajectory toward the full marketization of schooling in the US.
Fourth, the program’s design will undoubtedly increase wealth inequality and segregation while opening the doors to massive fraud. Arizona’s example is a window into what can happen with minimally regulated voucher programs. Under the federal program, individuals select which SGO to fund, and each SGO selects which students get vouchers, with virtually no guardrails. It is easy to imagine SGOs launching to take in funds from families in wealthy communities to pay for private school tuition at elite private schools or SGOs launching to provide vouchers only for “right fit” students.
SGOs could also be set up to pay for public school expenses, but the most likely scenario (based on what is already happening in Arizona) is that wealthy families will benefit and low-income families will be harmed. SGOs will more likely receive funds from individuals in wealthier communities and serve families residing in wealthier communities, leaving low-income communities and families with fewer resources due to declining federal funding.
Remember that all SGO funding is simply redirected federal tax dollars. Currently, federal funds pay for programs to support low-income students via Title 1 and students with disabilities via IDEA and other federal legislation.
The Institute on Taxation and Economic Policy estimates that the federal voucher program could cost the federal government $50 billion annually, which is more than Title 1 and IDEA annual spending combined. SGOs would get $5 billion (10%) in “administrative” fees. That’s $5 billion that could have gone to federal ed. programs
The federal voucher program can be stopped. Federal lawmakers have already filed the Keep Public Funds in Public Schools Act to repeal the program. Contact your US lawmakers and urge them to support this legislation. You can use one of our email templates here to send an email directly to the lawmakers who represent you.