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The U.S. Department of the Treasury proposed a policy on Sept. 3 to outlaw private universities, K-12 schools and trade schools from administering race-based initiatives. The policy effectively would forbid scholarships, admissions opportunities and grants aimed toward minorities and people of Color at those institutions.
Most public and private universities in the United States are currently exempt from paying federal taxes under section 501(c)(3) of the Internal Revenue Code. If the policy is approved, these institutions risk losing their federal tax-exempt status if they do not change their policies by May 31, 2027.
The new proposal would impact as many as 18,000 private educational institutions, including Michigan’s 401 private universities, 894 private elementary and secondary schools and 58 private trade schools.
The University of Michigan, however, would experience no change. However, the school is no stranger to controversy related to race-based initiatives. In 2003, Proposal 2 amended the state constitution to ban affirmative action and preferential race-based treatment in public university admissions. More recently, in 2025, the University also canceled its LEAD Scholars program and dismantled its diversity, equity and inclusion programs following an executive order from President Donald Trump.
In the policy’s press release, Treasury Secretary Scott Bessent described race-based initiatives as discriminatory.
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Bessent said. “Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”
In a January 2026 White House proclamation, Trump wrote the administration aims to defend the American people by ending race-based educational opportunities, which he described as antithetical to the United States.
“To further defend the American parent, my Administration is bringing the sinister ‘Diversity, Equity, and Inclusion’ agenda to a screeching halt,” Trump wrote. “We are proudly eliminating Federal funding for schools that permit discriminatory treatment and anti-American indoctrination.”
In an interview with The Michigan Daily, Public Policy senior Aidan Rozema, College Democrats at the University of Michigan treasurer, expressed concern about the proposal’s potential to harm minority students.
“Those scholarships are an important part of what makes education accessible for people of Color and other racial minorities,” Rozema said. “We’re ultimately better off when more people have access to college. I think it’s a reflection of their attempt to take American culture in this authoritarian, misogynistic, racist direction — and I don’t think that is what the American people voted for.”
In an interview with The Daily, LSA sophomore Isaac Schultz described the proposal as a poor use of government resources.
“I’ll always be in favor of providing students with opportunities to help pay for and earn a higher education,” Schultz said. “That’s why, to me, this focus on race-based scholarships from the Trump administration feels like a waste of government resources as opposed to a genuine attempt at meaningful policy.”
The policy proposal will undergo public commentary and could change significantly before it is implemented in May 2027. Universities will have the opportunity to challenge their tax-exemption status in court, where a judge can determine the validity of the Treasury’s policy.
Daily Staff Reporter Waverly Nanda can be reached at [email protected].
