TL;DR
- Three models fund private education: tax-credit scholarships (via SGOs), ESAs (education savings accounts), and vouchers.
- The big difference is the money. Tax-credit scholarships are funded by private donations; ESAs and vouchers spend government funds.
- The federal EFTC (§25F) is a tax-credit scholarship, privately funded, run through nonprofit SGOs, with donors claiming a $1,700 federal credit. It is not a voucher and not an ESA.
- Families can often combine a state ESA/voucher with a federal SGO scholarship, but not for the same expense.
The three models, side by side
| Tax-credit scholarship (SGO) | ESA | Voucher | |
|---|---|---|---|
| Who funds it | Private donors (who get a tax credit) | Government | Government |
| Who holds the money | The SGO, until it awards a scholarship | The family, in a restricted account | Paid to the school |
| What it covers | Qualified K-12 education expenses (per §530) | Many expenses: tuition, tutoring, curriculum, therapies | Private-school tuition |
| Federal example | EFTC / §25F (this site) | , (state programs) | , (state programs) |
Tax-credit scholarships (SGOs)
In a tax-credit scholarship program, individuals (and in some state programs, businesses) donate to a nonprofit Scholarship Granting Organization (SGO) and receive a tax credit for the gift. The SGO then awards scholarships to eligible families for qualified education expenses. The money is private the entire way, a donor’s dollars, not a government appropriation, which is why these programs have generally survived legal challenges that have complicated direct public funding of religious schools.
The federal Education Freedom Tax Credit (§25F) is exactly this model, at national scale: a nonrefundable federal credit of up to $1,700 per return for donations to SGOs, beginning in 2027.
Education savings accounts (ESAs)
An ESA flips the funding source: the government deposits public funds into a restricted, family-controlled account that can be spent across a menu of approved expenses, private-school tuition, tutoring, curriculum, therapies, sometimes technology. ESAs are the most flexible model for families because the family directs the spending, but they are funded by state appropriations and administered by (or for) the state. Arizona’s and Florida’s programs are well-known examples.
Vouchers
A voucher is the most traditional model: the government provides a set amount of public funds that pays tuition at a private school the family chooses, typically paid directly to the school. Vouchers are tuition-focused and, because they spend public money at private (sometimes religious) schools, have historically drawn the most legal and constitutional scrutiny of the three.
Where the federal EFTC fits
The EFTC is a federal tax-credit scholarship, column one in the table above. It does not appropriate government money to schools or families; instead it encourages private giving by returning the donation to the donor as a tax credit. For families, the practical experience resembles applying for a scholarship: you apply through an SGO, which checks eligibility and awards funds for qualified expenses.
Can you combine them?
Frequently, yes. A family in a state with an ESA or voucher may also benefit from a federally funded SGO scholarship. The key rule is no double-dipping: you can’t use two sources to pay the same dollar of the same expense. Because §25F’s coordination details (and the full list of qualified expenses) are still being finalized by Treasury, confirm specifics with your SGO and your state program before assuming two sources stack.
For how the federal credit compares to tax tools rather than scholarship programs, see EFTC vs. 529 plans & Coverdell ESAs and EFTC vs. state scholarship tax credits.
Frequently asked questions
Is the federal EFTC a voucher?
No. A voucher spends government money directly on private-school tuition. The EFTC (§25F) is a tax-credit scholarship: it is funded by private donations to nonprofit Scholarship Granting Organizations, and donors receive a federal tax credit for giving. No public funds are appropriated to schools, which is a key legal and political distinction.
What's the difference between an SGO scholarship and an ESA?
An SGO scholarship is privately funded (donations) and administered by a nonprofit that awards money for education expenses. An ESA (education savings account) is funded by the government, which deposits public dollars into a restricted account the family controls and spends across approved vendors. Different funding source, different administrator, different control over the money.
Can a family use more than one at the same time?
Often yes, a family may be eligible for a state ESA or voucher and a federally funded SGO scholarship. But you generally can't use two sources to pay for the same expense (no double-dipping), and §25F's coordination details are still being finalized by Treasury. Always confirm with your SGO and state program.
Which model is the federal program, and how much is it?
The federal Education Freedom Tax Credit (§25F) is a tax-credit scholarship. Donors give to an SGO and claim a nonrefundable federal credit capped at $1,700 per return (whether married-filing-jointly returns get one cap or two is unsettled pending Treasury guidance), with a 5-year carryforward. It launches January 1, 2027.
