Will Democrats Reject ‘Free Money’ for Schools?

A potentially sweeping reform to K-12 education beginning in January is forcing Democratic governors to weigh the political risks of joining or rejecting the new federal school choice program designed by conservatives.  

The little-known program, called the Federal Scholarship Tax Credit, creates a new and possibly large funding stream for education based on private donations to nonprofit scholarship granting organizations. The uncapped initiative is expected to generate billions of dollars in scholarships that could affect the educational paths and performance of millions of students in both public and private schools.

“It’s probably the most important federal educational reform in decades because once it’s fully implemented, 90% of students will be eligible for educational scholarships,” said Jim Blew, a program architect and advisor to the national coalition advocating for it. 

The appeal to Democratic governors, who have until Jan. 1 to opt into the program for 2027, is clear: The new funding could pay for tutoring and other educational services to help reverse the steady decline in the academic performance particularly of disadvantaged public school students. The political risks are also clear: Governors would face blowback from their own base – teachers unions and civil rights and progressive groups. They oppose the initiative because it will pull students from public schools by funding their tuition to attend private and religious institutions.

The politics are especially tricky for Democratic governors, including Gavin Newsom, JB Pritzker, and Josh Shapiro, who are eyeing 2028 presidential runs. Their party’s leftward shift in recent years has intensified the pressure on Democrats to reject any initiative from the Trump administration, even if it means passing up funding for public education. 

Novel Design

The program, approved by Congress in 2025, is novel in design. While charitable contributions typically allow donors a modest reduction in their taxable income, the new scholarship program offers a far more generous and unusual dollar-for-dollar federal tax credit up to $1,700. That means a contribution costs donors nothing, allowing them to essentially redirect their tax dollars from the U.S. Treasury to a scholarship granting organization that suits their values or politics.  

The scholarship organizations that receive the donations are another key piece of the design: Schools, districts, or organizations partnering with them can set them up to provide scholarships to their own students. For private school students, much of the money will likely go to tuition; for public school students, it will pay for educational services, such as tutoring, offered by the school or other providers. 

The architects decided to empower nonprofits because they aren’t bound by many legal constraints that apply when the government hands out scholarships. For instance, they can restrict funding only to students who attend a religious school of a particular faith, or a public school, or suffer from a disability, or don’t identify as LGBTQ. Nor are there strict income restrictions. Families can earn up to 300% of their area’s median income, or more than $500,000 a year in parts of New York, and still qualify for a scholarship. 

The program is a victory for Evangelical Christian, Catholic, Jewish, and Muslim groups that have lobbied for federal support to private schools for decades. With 31 mostly Republican states already on board, the legislation promises to significantly add to the relatively small number of K-12 students – just 1.6 million out of a total of 54 million nationwide – who benefit from state-based school choice programs. Catholic schools, which have seen a precipitous decline in students, stand to be among the biggest winners. 

The effect on public education is much less clear, with predictions ranging from dire to favorable. The program is expected to add to the ongoing decline in enrollment as students use scholarships to shift to private institutions, adding to pressure on districts to cut costs by shuttering schools over the protests of families. Castigating the program as an assault on public education, groups including the School Superintendents Association, state teachers unions, Legal Defense Fund, National Urban League, and UnidosUS are pressuring Democratic governors to spurn the deal. Critics also say the government shouldn’t back private schools that can lawfully discriminate against LGBTQ students in admissions and limit accommodations for disabled kids.

“At a moment when public education is under coordinated attack” from the Trump administration, “accommodation is unacceptable,” said a letter to Democratic governors signed by 33 state teachers union presidents. “Democratic leaders should be unequivocal in defending public schools as a public good and rejecting efforts to privatize them.”

Windfall for Public Schools?

The letter dismisses the possibility that the federal program could become a windfall for public schools, as advocates predict. Some 85% of all students attend public schools, and their families and boosters make up the vast majority of the 122 million taxpayers eligible for a tax credit. 

For this scenario to unfold, however, school districts will have to find the resources and expertise to set up and staff scholarship organizations to solicit donations and vet applicants. It’s a huge challenge that private schools, which already have this infrastructure in place, don’t face. 

Once the scholarship organizations open for business next year, the big question is how many taxpayers will make donations. It will take time for families to learn about the tax credit and realize that donations won’t cost them a penny. If only 2% to 5% of eligible taxpayers participate in the first years of the program, this would raise $3.8 billion to $9.4 billion for scholarships annually, according to a report by the American Federation for Children, a conservative advocacy group. If that number can climb to 20%, it would bring in an estimated $38 billion a year, more than the two largest federal programs for low-income and special-needs students combined. Theoretically, since the program is uncapped, many more billions could be raised – adding to the $2 trillion federal deficit. 

The group Democrats for Education Reform, which is part of the national advocacy coalition, calls the federal program a rare opportunity to boost public school funding at no cost to states. “For the first time in a long time the federal government is supporting significant new money for education,” said Jorge Elorza, CEO of Democrats for Education Reform and a former mayor of Providence, RI. “Why would you not keep these resources in state to support your students as opposed to them going into the black hole, which is the federal treasury?”

Governors who refuse to opt in could also face political heat due to the program’s “genius” design, allowing residents to send donations across state lines, says Professor Patrick Wolf, a school choice scholar at the University of Arkansas. If donations from residents in non-participating blue states flow into red states to support education, that would be “political hemlock for Democrat governors,” Wolf said. 

Leaders of Catholic dioceses nationwide are already talking about benefiting from such cross-border donations, says Robert Gilligan, executive director of the Catholic Conference of Illinois. Gilligan says he’ll send his own donations to a scholarship organization out of state if Illinois stays on the sidelines.

The Politics of Opting In

So far, only one Democratic governor has officially opted in, with the rest of the pack remaining tight-lipped on the politically fraught question. They appear to be playing for more time: waiting for the release of the final rules of the program at the end of September, even though nothing significant is expected to change, and for their own campaigns to take shape. 

In late 2025, Colorado Gov. Jared Polis became the first Democratic state leader to join the program, calling it “free money” for public education. A product of private schooling and a school choice supporter, Polis, who says Judaism has shaped his policies, is term-limited out of office in January. 

Kathy Hochul of New York is the only other Democratic governor who announced a willingness to participate, as long as she doesn’t find the final rules objectionable. A self-described “social justice Catholic,” Hochul attended Catholic grade school and Catholic University law school. Her reelection in November will depend partly on winning the state’s large bloc of Jewish and Catholic voters. 

“Hochul’s experience in Catholic schools likely showed her the value of a high-quality Catholic education and the benefits of giving other families the opportunity to afford it through the scholarships,” said Jim Cultrara, the New York conference’s education director. 

New York may provide political cover for its liberal neighbor, Massachusetts, to sign up. A coalition of advocacy groups has mobilized to encourage Gov. Maura Healey to say yes. Advocates think it’s a good bet. The popular governor is expected to glide to reelection this year even if she embraces the federal program in defiance of state and local teachers unions and social justice groups that Healey has battled before over her support to keep a testing requirement for high school graduation. Yet the governor, a strong backer of public education, isn’t a fan of school choice.

“Based on everything I know about the program and all the work the coalition is doing, I think the governor will make the right choice for kids and opt into the program,” said Katie Everett, head of the Massachusetts Educational Opportunities Coalition. 

The politics in Pennsylvania, where Gov. Shapiro is seen as entertaining presidential ambitions, are more complicated. Educated in Jewish academies, Shapiro pushed a Republican plan to give scholarships for private education to students in poorly performing public schools before Democrats forced him to axe it. Working across the aisle, he also championed big increases in funding for public education. 

Mark Gleason, treasurer of the group Excellent Schools PA, knows Shapiro and says the pragmatic governor might opt in partly because he doesn’t want Pennsylvanians sending donations to other states. There’s also presidential politics to consider as leftist Democrats surge in popularity in several states. “If he thinks a centrist is going to win the Democratic nomination in 2028, opting in would bolster his centrist credentials,” Gleason said. “But if being a centrist is the wrong place to be, he’s going to be more reticent to opt in.”

Illinois and California, which are also led by governors eyeing the White House, are tougher sells. In Illinois, where teachers unions have demonstrated their political strength by electing one of their own as mayor of Chicago, Gov. Pritzker questions the program’s benefit to public education. “We’re going to look at whether we can implement a program that will be good for all students and not just a program that’s about private schools, sometimes religious schools, and sometimes schools that would reject having an LGBTQ member as a teacher,” he told the media.

On the other hand, advocates say, Pritzker also knows that 69% of Illinois voters want him to opt in, according to a May poll that’s in keeping with favorable surveys in other states. “This tangible fact is hard to ignore,” said Gilligan of the Catholic Conference. “And I think the governor is also going to listen to what the unions have to say. So we are cautiously optimistic.”

California, with the most K-12 students of any state, would be the biggest win for advocates. But Gov. Newsom and state lawmakers have consistently rejected proposals for taxpayer-funded private school tuition, saying education dollars should be directed at public schools that serve all comers. 

If Newsom decides to say no before he’s term-limited out of office in January, California would join three other Democratic states – Minnesota, Oregon and Wisconsin – that have already done so.

Advocates say most holdout Democratic states will eventually opt in because the opportunity for more funding for public schools is too appealing to resist. But critics say governors will also weigh the harm to public schools in the loss of students to private schools and conclude that the tradeoff isn’t worth it. 

“I do not think that most blue state governors will opt in,” said Jessica Levin, the litigation director at the Education Law Center. “I anticipate that a large number of them will look at the evidence and reject the program.”

Private School Advantage

In states that have joined the federal program, most private schools are poised to cash in since they already have the infrastructure from their ongoing activities: fundraising and scholarship granting organizations, marketing experience, and families accustomed to writing checks. In New York, for instance, each of the eight Catholic dioceses will have scholarship organizations ready to raise money when the program begins, said Cultrara of the Catholic Conference. 

During Cultrara’s 30-year career at the conference, the number of Catholic schools in New York has plunged from 845 to approximately 400 today due to rising tuition and other factors. The executive says he hopes the scholarships, aimed at low-income students in Catholic schools, will help “stop the bleeding.”

By contrast, public school districts are now just learning about the program. Advocates saw a big increase over the summer in the number of district superintendents who want to benefit. In a remarkable turnabout, the influential School Superintendents Association, which had aggressively lobbied against the tax credit legislation, is now offering seminars to help its members engage it. 

Some wealthier districts are expected to set up their own scholarship organizations, which could take all of next year, while others will struggle with political opposition to the program from school boards and a lack of resources and expertise. “A bunch of superintendents are like, ‘I don’t have the time and staff to do this, and I don’t have a community that will make donations,’” said Evan Marwell, founder of EducationSuperHighway, which helped connect districts to the internet. 

EducationSuperHighway and Future School Fund are among a handful of groups that have emerged to serve as scholarship organizations for public schools nationwide. Marwell’s group aims to raise $4 billion a year in ten years to fund literacy tutoring and the Future School Fund plans to partner with districts in at least 10 states.

“Many districts will decide they’d rather partner with an organization that already has the compliance, technology, and administrative infrastructure in place,” said Deborah Gist, the founder of Future School Fund. “Our role is to make it easy for them to participate.”

In the future, superintendents may be able to significantly expand fundraising by enlisting employers who support public education, beginning with the districts themselves, says Maggie Cicco, a senior research fellow at Georgetown University’s Edunomics Lab. She says employers may be willing to help facilitate their employees’ donations to scholarship organizations through payroll deductions, as they do with other charitable giving, reducing friction on the giving side and creating a steady stream of funding. 

It’s now up to Democratic governors to decide if the promise of the federal program outweighs the risks to public education and their own political ambitions.

This article was originally published by RealClearInvestigations and made available via RealClearWire.