Educational Choice Comes to North Dakota

Just this past January, Governor Kelly Armstrong announced that North Dakota will participate in a new federal program that offers tax credits for certain donations made to organizations that provide educational scholarships to K-12 students in our state. North Dakota is now numbered among 23 states planning to participate in what is now being called the Education Freedom Tax Credit program. Over the past several months, the North Dakota Catholic Conference and the State Association of Nonpublic Schools have been advocating with the Governor’s office to opt in to this exciting new program so that all North Dakota students might have real options to access educational opportunities that suit their needs.
 
The Education Freedom Tax Credit program marks the first time the federal government has specifically incentivized charitable giving through federal tax credits to support educational choice. Educational choice is the idea that families should have the freedom to choose the educational setting and tools best suited to their children. It also entails the notion that, for families to be truly free in making these choices, they should be given adequate financial resources. This new federal tax credit program is a big step towards increasing educational freedom in North Dakota.
 
The Education Freedom Tax Credit program was part of the Trump administration’s One Big Beautiful Bill that was signed into law on the Fourth of July last year and will take effect beginning Jan. 1, 2027. The program has no sunset provision and is now a permanent part of the federal tax code. It aims to make a broad array of educational choices more affordable for families and it will be administered by the U.S. Treasury Department.
 
Under the Education Freedom Tax Credit program, individual taxpayers can receive a dollar-for-dollar tax credit up to $1,700 for cash contributions made to approved Scholarship Granting Organizations (SGOs), which in turn grant educational scholarships to eligible K-12 students. Although donors cannot earmark funds for any particular student, donors can designate that the funds be used to support students at a specific school or school system. If for some reason the taxpayer cannot use the full tax credit that year, it can be carried over to future tax years for up to five years. While donors could give more than $1,700, the credit is only available for $1,700 per year. Even so, any amount donated over that amount might still be treated as an itemized charitable deduction to reduce taxable income. One area that the Treasury Department will need to clarify is married couples filing jointly. The law states “any taxpayer” can use the tax credit but it does not address married joint filers, so it is unclear right now whether each spouse on a joint return could separately claim up to a $1,700 credit (for a potential $3,400 combined credit) or if a joint return is limited to a single $1,700 credit. 
 
What this means is that, instead of North Dakota taxpayers sending all their federal tax dollars to the federal government in Washington, D.C., they can instead direct the funds to stay in North Dakota to support educational choice for families in our state.
 
Under the program, a participating SGO must be a 501(c)(3) nonprofit organization that is approved by the governor. It cannot be a private foundation. The SGO is required to provide scholarships to at least 10 or more students who do not all attend the same school. The SGO must also run lean and spend no less than 90% of all donations on funding student scholarships. The SGO must provide scholarships to children to attend the school of their choice or to access other qualified education-related services and products.  
 
To be eligible for a scholarship, a student must be eligible for enrollment in a public K-12 school and have an annual household income at or below 300% of the “area gross median income.” This is a high threshold that would cover the majority of North Dakotan families. SGOs are also allowed to narrow eligibility requirements within this general framework to prioritize assisting those in greatest need. Thus, for example, an SGO could establish means-testing levels where needier students from poorer families would qualify for more funds or would be first in line for the scholarships. Although the amount of a donor’s tax credit is limited to $1,700, scholarship amounts given to students are not capped and will be determined by the SGO awarding those scholarships based on its mission.
 
Education freedom scholarships in this program can be used for any qualified education expense of an eligible student, which includes a broad set of expenses incurred in connection with K-12 education for students in public, private, charter, or home schools, located in urban, suburban, or rural areas. These qualified educational expenses include things like tuition, fees, tutoring, special needs services, books, supplies, uniforms, transportation, computer technology, internet access, and the like, as long as it is used for educational purposes. The SGO, however, could narrow this list to focus more specifically on funding scholarships that align with its mission. Thus, for example, an SGO with a mission to support students wishing to attend nonpublic schools could offer tuition-only scholarships.
 
For a state to participate in the program, two things must happen. First, the governor or other state official or agency designated by state law must opt in to the program, which our governor has already done. Second, the governor or other state official or agency designated by state law must submit a list of approved SGOs to the Treasury Department. At this time, the North Dakota Catholic Conference and the State Association of Nonpublic Schools are working together with other experts in the field to form an approved SGO that will fund scholarships to support families who wish to send their children to nonpublic schools in our state. Setting up this SGO will not happen immediately but will take significant time, effort, and resources. Once the SGO is in place, we will disseminate information to those wanting to participate.  
 
While the state of North Dakota does not yet offer financial support for K-12 students attending nonpublic schools, the federal Education Freedom Tax Credit program is a good first start. Educational choice has come to North Dakota.