Tutoring scholarships at low-income schools: the §25F census-tract safe harbor

Every §25F scholarship has to go to a student from a household at or below 300% of area median gross income, and the Scholarship Granting Organization (SGO) that awards it has to verify that. For one kind of award, Treasury’s proposed rules let a school’s location stand in for each family’s income paperwork. This guide is for school districts, school leaders, tutoring organizations, and SGOs weighing tutoring programs. It covers what the rule says, how a school qualifies, what still applies, and what Treasury has not answered yet.

What the census-tract safe harbor does

Under Treasury’s proposed regulations (October 2026), which taxpayers and SGOs may rely on for 2027 contributions, proposed § 1.25F-3(c)(6)(iii)(C) works like this. If an SGO provides scholarships to individual students at schools in a low-income area for individual academic tutoring, or for special needs services in the case of a special needs student, and the students are “selected by the school on the basis of the particular student’s academic or other need,” those students are treated as meeting the §25F household income requirement “whether or not the student’s household income is verified.”

It is one of four ways the proposed rules let an SGO establish income eligibility. The others are direct documentation (pay stubs, tax returns, IRS transcripts, W-2s), an award letter showing a household member gets SNAP, TANF, WIC, Section 8 housing, or SSI, and an automatic safe harbor for foster children. Our guide to income verification for SGOs covers all four. Treasury says the last three are meant to reduce burdens for families and SGOs by not requiring SGOs to collect “more sensitive household-income information than is necessary if other reliable indicators of household income are present.”

Treasury estimates this safe harbor would make about 170,000 students eligible who otherwise would not be, about 0.6% of the students it expects to be eligible. That figure comes from the rule’s economic analysis and is not a cap. Treasury also says it lacks the data to quantify “the number or location of schools that work with SGOs to fund tutoring or other educational services for their students.”

How a school qualifies: two tests

The school has to meet one of two tests in the proposed rule:

1. Location. “The school is located in a qualified census tract as identified at” HUD’s QCT map “(or a tract identified in future guidance).”
2. Enrollment. “The school certifies that at least 80 percent of its students reside in such a qualified census tract, regardless of the location of the school.” The 80% is measured across the school’s students, not only the ones who receive scholarships, and the school is the one that certifies it.

The rule says “school,” not “private school.” Nothing in it limits the safe harbor to one kind of school, so a public, private, or religious school that meets either test can select students for it. (§25F borrows its definition of a school from §530, which means a school providing K-12 education as determined under state law.) For public schools in particular, see what §25F allows for public-school students.

What a qualified census tract is

The term comes from the Low-Income Housing Tax Credit. Under 26 U.S.C. § 42(d)(5)(B)(ii), HUD designates a census tract as qualified when 50% or more of its households have incomes below 60% of the area median gross income, or when its poverty rate is at least 25%. There is a cap: all of the designated tracts in one metropolitan area, or in a state’s nonmetropolitan area, can’t hold more than 20% of that area’s population. So a tract can meet the income test and still be left off the list.

HUD redesignates the tracts every year from new American Community Survey data. Its 2027 designations were published in the Federal Register on October 6, 2026 (91 FR 63573). By our count of HUD’s data files, the 2027 list has 14,539 tracts and the 2026 list had 14,496. The totals are close, but the lists are not the same: 1,695 tracts are new for 2027 and 1,652 dropped off. A school’s answer can change from one year to the next.

What it waives, and what still applies

The safe harbor answers one question: whether the student’s household is at or below 300% of area median gross income. Every other §25F rule still applies to the student and the SGO:

• The student lives in the right state. Scholarships go only to students “solely within the State” on whose list the SGO appears, which means the student resides there. Attending school there is not enough, so a school near a state line can’t route this SGO’s scholarships to students who live across it (with narrow exceptions for military and Tribal families).
• The student is eligible to enroll in a public school. That is the other half of the eligible-student definition, and the SGO still verifies it.
• No disqualified persons. No scholarships to the SGO’s officers, directors, or trustees, its substantial contributors, anyone who takes part in selecting recipients or setting awards (including committee members), or their family members. The proposed rules make no exception for volunteers.
• No earmarking. The SGO can’t earmark or set aside contributions for a particular student. (Our guide to designating gifts to schools covers what donors can and can’t direct.)
• Qualified expenses, paid the right way. Academic tutoring and special needs services are both on the §530(b)(3)(A) list §25F borrows. An SGO may pay a tutor or other provider directly only if the provider has been verified as an appropriate provider, is not related to the student, and must return overpayments. Tuition, fees, and similar charges billed by the school go directly to the school. No money goes to the family except a qualified reimbursement backed by a receipt.
• The SGO’s own tests. It must fund at least 10 students who don’t all attend the same school, keep a separate §25F account, and spend at least 90% of its income on scholarships by the end of the following year.

The safe harbor is also written for one kind of award. It covers scholarships for individual academic tutoring and for special needs services. The proposal does not say that a student who qualifies this way also qualifies for a different kind of scholarship, such as tuition or a computer, so the cautious reading is to verify income the regular way for any other award.

The school picks the students

Under this route the school, not the family and not the SGO, chooses who gets the service, and it chooses on “the particular student’s academic or other need.” A family that applies to an SGO on its own can still qualify through one of the other income methods, but not through this one.

Need also has to be diagnosed independently. The audit must certify that “the student’s need for the services, including the nature and extent of the services needed, is independently diagnosed by a professional not associated with the provider or vendor of the services.” In other words, the tutoring company or therapist who will be paid can’t be the one who decides the student needs it. For special-needs services, our guide for families of students with disabilities covers what else applies.

Award priority works differently for these scholarships. §25F requires priority for returning recipients and then their siblings, but proposed § 1.25F-3(c)(8) says that when a scholarship is awarded based on need for individual tutoring or special-needs services, prior awards and siblings “may not be relevant and priority instead can be based on need for the services.”

The annual third-party audit

The trade for skipping income verification is an audit. An SGO using the safe harbor “must annually obtain, and provide to the covered State, a third-party audit” that certifies:

1. the school meets the census-tract test or the 80% test;
2. the scholarship recipients were selected by the school based on academic or special need;
3. tutors or other providers were qualified to render the services;
4. each student’s need for the services, including their nature and extent, was independently diagnosed by a professional not associated with the provider or vendor; and
5. the services met appropriate quality standards, were provided with a duration and frequency commonly required to produce benefit, and their impact on each scholarship recipient was assessed.

The SGO’s annual certification to the IRS must also state that it got this audit and gave the report to the state. This is a separate requirement from the annual financial and programmatic audit every SGO needs, which an external, independent professional or accredited body must perform when the SGO’s receipts are over $500,000.

How an SGO would run it

The proposed rules don’t lay out a procedure or forms, but read together they require these pieces:

1. Confirm the school qualifies by location or by the 80% certification, and keep the record for the auditor.
2. The school selects the students based on each student’s academic or other need, with the need diagnosed by a professional not associated with the provider.
3. The SGO checks everything except income: the student lives in a state where the SGO is listed, is eligible to enroll in a public school, and is not a disqualified person.
4. The SGO pays the provider directly after verifying it as an appropriate provider that is not related to the student, or pays the school for charges the school bills.
5. The services are delivered and measured: qualified providers, appropriate quality standards, the duration and frequency commonly required to produce benefit, and an assessment of each student’s results.
6. A third party audits the program each year, the SGO gives the report to the state, and the SGO certifies to the IRS that it did.

Because every SGO must fund at least 10 students who don’t all attend the same school, an SGO whose only program is tutoring at one school would not meet that test on its own. An SGO that funds students at several schools can.

Open questions

Does small-group tutoring count as “individual”?

The rule says “individual academic tutoring” and does not define it, set a group size, or say how often sessions must happen. Accelerate, a nonprofit that supports high-impact tutoring in public schools, said in a statement reported by K-12 Dive that it was “encouraged” that the draft rule treats academic tutoring as a qualified expense, but said it doesn’t define what eligible tutoring programs should look like in terms of frequency and student group size.

Which year’s HUD list applies?

The rule points to tracts “as identified at” HUD’s QCT website, or in future guidance, without naming a year. Treasury’s estimate used HUD’s 2026 list. For the housing credit, HUD says its 2027 list applies to credit allocations after December 31, 2026, but the §25F proposal doesn’t adopt that rule. A school that is on one list and not the other has no clear answer yet, which is why the checker shows both.

What do the audit standards mean?

The proposal doesn’t define who counts as a qualified tutor, what “appropriate quality standards” are, what duration and frequency are “commonly required to produce benefit,” or which professionals can diagnose need. On October 22, 2026, five governors asked Treasury to define each of those standards.

Do school staff who pick students become disqualified persons?

The disqualified-person rule covers “any individual participating in, including as a member of a committee, the selection of scholarship recipients,” and their family members. The proposal doesn’t say how that applies to school staff who select students under this safe harbor. If it reaches them, their own children and other family members could not receive scholarships from that SGO.

The expense list and final rules are still to come

§25F defines qualified expenses by reference to §530(b)(3)(A), which names academic tutoring and special needs services. Treasury says it will issue separate §530 guidance on the expense list and on what counts as a school, and it has not been issued yet. The safe harbor itself is proposed, not final. SGOs may rely on the proposed regulations for contributions made on or after January 1, 2027, until final regulations are published, if they follow them “in their entirety and in a consistent manner.” Comments are due December 1, 2026, a public hearing is scheduled for December 15, 2026, and the final rule could change the safe harbor or settle these questions.

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