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The Federal Scholarship Tax Credit, or \u201cEducation Freedom Tax Credit\u201d \u2014<\/a> a federal tax credit for donations to 501(c)(3) public charities providing scholarships to elementary or secondary school pupils \u2014 threw a proverbial lifeline to Catholic schools following its passage into law July 4, 2025.<\/p>\n A nationwide network of U.S. Catholic parochial schools once served about 5.6 million students \u2014 during the 1964-65 school year. But over the next 60 years, enrollment in those schools plummeted 70% \u2014 to currently fewer than 1.7 million students.<\/p>\n The scholarship tax credit provision \u2014 which becomes effective Jan. 1 \u2014 could eventually lead to increased contributions to Catholic nonprofits that grant scholarships for K-12 students. The contributions could in turn increase the number of scholarships that can be offered \u2014 and thereby hopefully expand access to, and enrollment in, Catholic schools.<\/p>\n But will it work?<\/p>\n \u201cCertainly, we\u2019re hopeful that it will have an impact on enrollment,\u201d Sister Dale McDonald, a member of the Sisters of the Presentation of the Virgin Mary and vice president of public policy for the National Catholic Educational Association,<\/a> told OSV News.<\/p>\n \u201cThe big challenge is, how much money can the SGOs (scholarship granting organizations) raise to be able to have something to give in scholarship aid?\u201d Sister Dale said. \u201cFor some populations, it has to be large enough that it would make it possible for them to enter. If the question is $5,000 or $12,000 \u2014 and you only get $1,200 \u2014 that may not be enough to make a difference,\u201d she explained. \u201cIt has to be a substantial scholarship for people of very low income.\u201d<\/p>\n During 2025-2026, the NCEA recorded 6.6% of Catholic school students received Title I services. Title I is a major U.S. federal education program under the Elementary and Secondary Education Act that provides supplemental funding to schools serving high numbers or percentages of children from low-income families. Another 14.2% of Catholic school students are eligible for a free or reduced-cost lunch.<\/p>\n \u201cPeople of modest income can also apply,\u201d continued Sister Dale, \u201cso they certainly could be helped, and maybe a mother doesn\u2019t have to work another job and a father doesn\u2019t have to work two jobs, if they can get $1,200 or $1,400. It all depends on the amount of money the scholarship organizations raise, and then the way in which they set up their own priorities for how they will administer applications.\u201d<\/p>\n The U.S. Treasury Department estimates approximately 95% of American children live in households that meet the income limit for the scholarship tax credit.<\/p>\n Shawn Peterson cautions that increased Catholic school enrollment won\u2019t happen overnight. The president of Catholic Education Partners, which works nationally to help families access Catholic schooling, Peterson is also chairman and co-founder of Reficio, now known as the American Catholic Education Fund, the largest Catholic SGO in America.<\/p>\n \u201cIt\u2019s going to take some time,\u201d Peterson said. \u201cAnd it\u2019s not on Day 1 \u2014 you\u2019re not going to flip a switch and it\u2019s going to be magically all different than it was the day before. But as we\u2019ve seen with state programs \u2014 once you get them up and running and people are used to them \u2014 you get a lot of giving. The beauty about this is \u2014 because it\u2019s a national program \u2014 there\u2019s going to be potential for billions of dollars to be raised.\u201d<\/p>\n The American Catholic Education Fund is partnering with all the dioceses in Texas, Missouri, South Dakota, South Carolina and Alaska, as well as dioceses in Montana, Oklahoma, Illinois, and the nation\u2019s oldest, the Archdiocese of Baltimore. The Personal Ordinariate of the Chair of St. Peter, one of three Catholic dioceses with Anglican heritage, is also included.<\/p>\n For parents wondering how the scholarship tax credit works, Peterson offered OSV News a brief review.<\/p>\n \u201cIt\u2019s for anyone that owes any kind of federal income tax. It is indeed a credit, so it\u2019s dollar for dollar,\u201d he said. \u201cIt\u2019s up to $1,700 a year for individuals, and $3,400 for married couples filing jointly.\u201d<\/p>\n A tax credit reduces federal income tax dollar for dollar, unlike a deduction, which reduces taxable income.<\/p>\n \u201cParents can designate a school where their money can go \u2014 any donor can \u2014 but you cannot designate a child,\u201d Peterson said. \u201cSo grandma and grandpa can\u2019t give $3,400 and say, \u2018I want this to go to Bobby or to Julie as a scholarship.’\u201d<\/p>\n \u201cBut,\u201d Peterson explained, \u201chow it does translate into that is, you can choose a school or you can choose a diocese if you want. \u2026 Down to that granular level, parents could give money \u2014 and then they\u2019re giving it toward their school, and their child\u2019s school is going to benefit from those funds. The more funds that come in,\u201d he added, \u201cthe more that school is going to have scholarships to give out. You just cannot earmark a child.\u201d<\/p>\n And can donors be certain their contributions will be used for a scholarship?<\/p>\n \u201cIt is a scholarship program, so schools do need to use these funds for that,\u201d confirmed Peterson. \u201cA scholarship will go to a child; these funds will find their way to a child.\u201d<\/p>\n Peterson is quite optimistic concerning the possible success of the Federal Scholarship Tax Credit.<\/p>\n \u201cThis is going to be transformative for Catholic education across the country,\u201d he predicted. \u201cAnd there\u2019s some states that have opted in that don\u2019t have state programs. So New York, for example \u2014 this is going to be an opportunity for New Yorkers to experience school choice.\u201d<\/p>\n On Oct. 9, New York Gov. Kathy Hochul, who is Catholic, announced New York state would opt into the scholarship tax credit program, a move that could \u2014 despite opposition from the powerful public school teachers\u2019 union \u2014 benefit more than 2.7 million New York public, parochial and private school students.<\/p>\n \u201cWe know there are families who want this for their children but have not always had the financial means to make it possible,\u201d Sister Mary Grace Walsh, an Apostle of the Sacred Heart of Jesus and superintendent of schools in the Archdiocese of New York, told OSV News in an e-mail. \u201cThis program may help open that door.\u201d<\/p>\n During the 2025-2026 academic year, the Archdiocese of New York experienced four elementary school closures, one secondary school closure, and two campus consolidations.<\/p>\n \u201cThe FSTC may help more families choose a Catholic education, and give our schools greater opportunities to meet the needs of their students,\u201d she said. \u201cWe cannot predict exactly what this will mean for individual schools, but I believe it gives us another reason to look ahead with hope.\u201d<\/p>\n Still, Sister Mary Grace \u2014 like Peterson and Sister Dale \u2014 is encouraged.<\/p>\n \u201cWhat gives me great hope is the possibility of reaching families who may have always wanted a Catholic education for their students but did not think it was possible because of the cost,\u201d she said. \u201cWe have an opportunity to say yes to more students \u2014 and to help them grow in faith, discover their potential, and know that they are loved.\u201d<\/p>\n Kimberley Heatherington is an OSV News correspondent. She writes from Virginia.<\/em><\/p>\n<\/a><\/div>\n<\/div>\n<\/a><\/a>