The biggest obstacle to the §25F credit isn't politics, it's the adoption gap

Two debates, and only one decides it

Almost all of the attention on the Education Freedom Tax Credit is political: which governors have opted in, which are holding out, whether a future Congress might narrow or repeal it. That debate is real and worth following. But it answers a different question than the one that ultimately determines whether scholarships reach kids.

Politics decides whether the credit is available, in a given state and in a given year. It does not decide whether available credits get claimed. And on that second question, a dollar-for-dollar federal credit turns out to be surprisingly easy to leave unused. Once a state is in and 2027 arrives, the program’s success stops being a story about legislators and becomes a story about millions of ordinary taxpayers each deciding, or failing, to act. That is the adoption gap, and it deserves at least as much attention as the political scoreboard.

What history says about “free money”

The intuition that a dollar-for-dollar credit will “sell itself” runs straight into the evidence. Writing in Education Next, AEI’s Rick Hess, a supporter of the credit, points to two uncomfortable precedents:

• Employer 401(k) matches. A match is the closest thing to free money in personal finance, an instant, guaranteed return, and yet a large share of eligible workers contribute too little to capture it, or don’t participate at all. The benefit is obvious; the follow-through is not.
• The presidential campaign checkoff. The box on the federal return that directs a few dollars to the presidential campaign fund costs the taxpayer nothing, it doesn’t change your refund or your bill. Participation still fell from roughly 29% in the late 1970s to about 4% in recent years. Even zero-cost, one-checkbox participation drifts toward zero when people are confused or indifferent.

The lesson isn’t that the §25F credit will fail. It’s that uptake is never automatic, and a credit that asks more of a person than ticking a box, actually donating, keeping a receipt, claiming it on a return, has to earn its participation by removing friction. Hess’s warning is the right one: the enemy of a good tax benefit is the hassle of using it.

The four frictions that suppress uptake

Break the “hassle” into its parts and it’s four distinct barriers, each of which quietly removes a slice of would-be participants:

1. Awareness

You can’t claim a credit you’ve never heard of, or one you vaguely associate with “something for private schools that doesn’t apply to me.” Much of the eligible donor pool doesn’t yet know the credit exists, or misunderstands who it’s for. (It is, in fact, open to essentially any taxpayer with $1,700 of federal income tax.)

2. Paperwork and risk

A new line on a tax return reads as a new way to make a mistake. Donors worry about substantiation, about handing an organization sensitive information, about an audit. §25F actually addresses this well: the unique donor number lets the IRS match a claimed credit to a real donor and a real SGO without the donor ever handing over a Social Security number. But the perception of paperwork risk still deters people until the process feels obviously simple.

3. Cash-flow timing

Asking a household to part with $1,700 now and get it back much later is a real ask, even when “later” is certain. This is the friction Hess flags most sharply, and it’s the most fixable of all: adjusting tax withholding lets a donor recover the credit across their 2027 paychecks instead of waiting for a 2028 refund. The wait that scares people off is largely optional; most just don’t know that yet.

4. Trust

Giving $1,700 to an organization you’ve never heard of is a leap. People give when a messenger they already trust, their child’s school, their congregation, a community group, vouches for where the money goes. Trust is also where the program is most exposed: a handful of bad-actor SGOs could sour the public on all of them, which is why clean, transparent operators aren’t just nice to have, they’re the thing that protects everyone’s participation.

Every friction has a fix

None of these barriers is a law of nature. Each maps to a concrete, already-available response:

• Awareness → trusted messengers. The credit spreads fastest through the institutions families already belong to. A one-page explainer from a school or congregation outperforms any amount of national press. (We keep a shareable community explainer for exactly this.)
• Paperwork → simple platforms and clear receipts. When contributing takes two minutes and the acknowledgment and donor number arrive immediately, the “new way to mess up my taxes” fear evaporates.
• Cash-flow → the withholding move. The single most effective answer to “I don’t want to wait a year” is showing donors they don’t have to. See getting the credit in your paycheck.
• Trust → clean, audited SGOs. Transparent books, annual audits, and honest communication turn a stranger into a credible steward, and inoculate the whole program against the reputational risk a few bad actors would otherwise create.

Notice the pattern: the fixes aren’t federal legislation or a change in the political weather. They’re operational. They happen at the level of the individual organization asking for the gift.

Adoption is won at the operator layer

The credit’s total impact is just the sum of thousands of small yes-or-no decisions to give. And every one of those decisions is made at a single point in the system: the Scholarship Granting Organization that asks. The SGO is where awareness is created, where the paperwork is either easy or scary, where the donor learns whether they can accelerate the benefit, and where trust is earned or lost. If adoption is the game, the SGO is the field it’s played on.

That’s why the unglamorous work, donor onboarding, instant §25F receipts and donor numbers, clean fund accounting, honest reporting, matters more to the program’s success than most of the political coverage suggests. It’s also the biggest lever an individual operator controls. You can’t change whether your legislature opts in this week. You can absolutely change whether a donor who was going to give finds it effortless or gives up halfway.

What this means for you

• If you’re a donor: the credit is almost certainly available to you, and the wait that puts people off is largely avoidable. Start with how the credit works, then see how to take it in your paycheck.
• If you run or advise an SGO: your conversion rate, the share of potential donors who actually follow through, is the number that decides your impact. Treat friction as the enemy.
• If you’re an advocate or journalist: the political scoreboard is only half the story. The other half, quieter and more decisive, is whether the machinery of participation actually works once the credit is live.

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