SGO software: the management platform for Scholarship Granting Organizations (§25F)

Why an SGO needs software

A Scholarship Granting Organization is the operational engine of the Education Freedom Tax Credit (EFTC / §25F): donors give, claim the federal credit, and the SGO turns those dollars into K-12 scholarships. If you’re still scoping the model, start with how to start an SGO. This page is about the system that runs it.

The binding constraint is the 90/10 rule: §25F(d)(1)(B) requires at least 90% of income to go to scholarships, leaving no more than 10% for everything else, staff, verification, audits, fundraising, and technology combined. That is one of the strictest pass-through standards in the nonprofit world, and it makes manual, spreadsheet-driven operations a liability the moment you have real volume. SGO software exists to do the repetitive, high-stakes work automatically so your administrative spend stays under the cap.

There is a second, quieter reason the software matters. The donor-facing half of this system is where the credit’s adoption gap is won or lost: awareness, easy paperwork, and trust all live at the point where you ask for the gift. Frictionless onboarding and instant, clean receipts aren’t just compliance, they’re the difference between a would-be donor who follows through and one who gives up.

What SGO software does

Good SGO software runs the full pipeline, with each stage mapped to a §25F requirement:

Donor side

• Donor onboarding & identity verification, collect cash contributions (the credit is cash-only) and verify who gave.
• Payment processing into the correct separate account, so qualified contributions never co-mingle (§25F(c)(5)(B)).
• Per-donor §25F receipts / substantiation donors use to claim the credit on their federal return.
• No-double-benefit tracking, flag that a credited gift can’t also be deducted under §170, and reduce the federal credit by any state credit for the same contribution.

Family & scholarship side

• Family applications and document collection.
• Income verification against 300% of area median gross income (the §42 AMGI figure) and family size.
• An award engine that enforces the required priority: prior-year recipients first, then their siblings (§25F(d)(1)(D)).
• Anti-earmarking and self-dealing controls, no donor-designated students, no awards to disqualified persons.
• Disbursement to schools for qualified K-12 expenses, with records tying credited dollars to scholarships.

Compliance & reporting

• Separate-account fund accounting and a clean audit trail.
• State certification reporting, participating states re-list SGOs annually and layer their own reporting on top.
• 90/10 monitoring so you can see, in real time, whether you’re inside the administrative cap.

SGO software buyer’s checklist

When you evaluate a platform, hold it against the federal requirements. Ask whether it does all of the following out of the box:

• Generates per-donor §25F substantiation automatically.
• Enforces separate accounts and shows credited dollars flowing only to qualifying scholarships.
• Verifies household income against 300% AMGI and stores the documentation.
• Applies the renewal-then-sibling award priority without manual tracking.
• Blocks earmarked donations and awards to disqualified persons.
• Tracks the no-double-benefit rule with §170 and state credits.
• Produces your state’s annual report and keeps an audit trail.
• Surfaces your 90/10 position so you never blow the administrative cap.

Build vs. buy

Some founders consider building in-house or stitching together a generic CRM, a payment processor, and spreadsheets. The math usually doesn’t work for an SGO.

What it should cost

Don’t evaluate price in a vacuum, evaluate it against the cap. The right question is not “what’s the cheapest tool,” it’s “what keeps the most of my income in scholarships while staying compliant.” Software that replaces manual verification, disbursement, and receipting labor typically pays for itself by keeping administrative spend inside the 10% the law allows.

Choosing a platform

1. Confirm it’s built for §25F, not retrofitted from a generic nonprofit CRM. Walk the checklist above point by point.
2. Match it to your state. If you operate where a state program already exists, the platform should handle both the state rules and the federal §25F layer. Check your state’s status.
3. Decide before launch. Adopt during formation so your accounts and workflows are built around it from day one.
4. Plan for annual re-certification. Participation isn’t one-time; your platform should make yearly reporting routine.

New to the program entirely? Read what an SGO is and how to start one, then come back to choose the system that runs it.

The buying-decision questions to ask

The checklist above tells you whether a platform can do the federal job. These four questions separate platforms once you know they can, the ones a vendor won’t always volunteer. Ask every one before you sign.

1. How does the pricing actually work?

A flat monthly fee, a per-transaction fee, and a percentage of donations are very different things measured against the 90/10 cap. Ask for the all-in number: every fee a dollar passes through before it reaches a scholarship, not just the headline subscription. A platform that looks cheap but charges separately for payments, receipting, and reporting can eat more of your 10% than a single transparent rate.

2. Who actually holds the money?

This is the question most buyers skip and later regret. Some platforms take custody of donor funds and move them on your behalf; others never touch the money, routing it through a bank account in your SGO’s own name so you keep custody and control. Custody affects your audit, your liability, and how fast you can disburse. Ask where donations sit between the gift and the scholarship, whose name is on the account, and who controls the float.

3. What controls protect a disbursement?

Credited dollars are the IRS’s business now. Ask whether the platform enforces dual control on disbursements, keeps an immutable audit trail tying each scholarship back to qualified contributions, and blocks earmarked or self-dealing awards by design rather than by policy memo. Controls you have to remember to follow are the ones an audit finds missing.

4. Can you leave?

Ask how you get your data out, donor records, receipts, award history, and fund accounting, in a usable format, and what it costs. A platform that makes leaving painful is a platform you have stopped choosing and started tolerating. Portability is cheap insurance against a vendor whose priorities drift from yours.

Frequently asked questions