On September 3, 2026, the Treasury Department and the IRS released a proposed rule that goes well past the 2023 Supreme Court ruling on college admissions -- it would condition a private school's federal tax exemption itself on not considering race, color, or national or ethnic origin in any school policy or program, not just admissions. It's a proposal, not a final rule, and it's already drawing pushback. Here's what it actually says.

What would trigger the loss of tax-exempt status

Under the proposed regulation, a private nonprofit school wouldn't qualify for tax exemption under Section 501(c)(3) if it adopts, maintains, or enforces a policy or practice that considers race, color, or national or ethnic origin -- regardless of whether the school's purpose for doing so is remedial or aimed at diversity. That "regardless of purpose" language is the real expansion here: it's not limited to admissions decisions, the specific thing Students for Fair Admissions v. Harvard addressed in 2023. The proposed rule reaches admissions, scholarships and loans, athletics, and any other school-administered or school-supported program.

It also removes an existing carve-out schools have relied on for decades: current IRS guidance under Revenue Procedure 75-50 permits certain financial-aid programs that favor racial minority groups specifically when they're designed to promote a school's own racially nondiscriminatory policy. The proposal would eliminate that allowance.

Who's actually covered

The agencies estimate the proposal could affect as many as 18,000 institutions -- and the scope is broader than "colleges": it covers private primary and secondary schools, colleges, universities, professional schools, and trade schools alike, with an exception for schools with a religious mission. If you're only thinking about this as a higher-ed story, it isn't one -- most of the 18,000 affected institutions are K-12 schools.

One distinction worth being precise about: this specific lever doesn't reach public universities. The mechanism here is Section 501(c)(3) status, something private nonprofit institutions hold and rely on -- public universities are generally tax-exempt as government instrumentalities under a different part of the tax code, not as 501(c)(3) charities, so a rule about 501(c)(3) conditions doesn't touch them directly.

HBCUs are a genuinely nuanced case, not a clean exemption. Historically Black colleges and universities were founded specifically because Black students were excluded from most predominantly white institutions, and their missions still center on serving historically underserved students. But coverage of the proposal has been careful to note that mission alone doesn't put an HBCU outside the rule's reach -- an HBCU's admissions and financial-aid criteria would need the same scrutiny as any other private school's under the new standard, not an automatic pass because of its founding purpose.

What schools could still do

The proposal isn't a ban on financial aid for disadvantaged students -- it's specific about which criteria stay usable. Schools could continue targeting aid and admission preferences using race-neutral factors: family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement. That's a real, if narrower, set of levers than what Revenue Procedure 75-50 currently allows, and it lines up with the same race-neutral shift already underway in private scholarships since SFFA -- the share of scholarships nationally with race-based eligibility requirements has already been dropping.

Timeline: this is a proposal, not current law

Comments on the proposed rule are due November 3, 2026. If it's finalized, the rules would first apply to tax years beginning after May 31, 2027 -- meaning even in the fastest realistic path, no school loses tax-exempt status under this specific rule before then, and a comment period this substantial (affecting up to 18,000 institutions) makes a fast, unaltered finalization far from guaranteed. This follows the same basic shape as the federal ACTS admissions-data reporting rule working through the courts right now: a real federal action with a real timeline, but not yet something that changes what any specific school is doing today.

What this means for you

  • Nothing about your current application changes because of this. The rule is a proposal with a comment period running through November 2026 and, even if finalized as written, wouldn't apply until tax years starting after May 31, 2027 -- there's no admissions cycle currently affected.
  • This is broader than the 2023 admissions ruling. SFFA v. Harvard was about the admissions decision itself; this proposal reaches scholarships, athletics, and any other school program, with the tax exemption itself as the enforcement mechanism.
  • Public universities aren't directly reached by this specific rule -- if you're applying to public schools, this particular regulatory action isn't the one to track for them.
  • If you're applying for a private scholarship with race-based eligibility criteria, that landscape was already shifting before this proposal -- check the scholarship's current eligibility language directly rather than assuming criteria you saw in a past year still apply.
  • Watch the November 3, 2026 comment deadline if you're tracking this closely. A rule this broad, covering 18,000 institutions, is likely to draw substantial pushback during the comment period -- what gets finalized, if anything does, may look different from what was proposed.

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