An estimated 51.7 million children (91.7% of everyone eligible to enroll in a K-12 school) meet the income test to receive scholarships under the Education Freedom Tax Credit, the federal program launching January 1, 2027, according to a new report released Tuesday by the American Federation for Children.
The analysis is the first state-by-state estimate of who can actually receive money from the program, built on Census population estimates, American Community Survey microdata, and HUD income limits.
The credit was created as Section 25F of the tax code by the One Big Beautiful Bill Act, the same 2025 law that overhauled federal student loan borrowing.
By The Numbers
- 51.7 million eligible children, out of 56.4 million eligible to enroll in K-12
- 85.9% to 96.2% eligibility range across states (D.C. lowest, Maine highest)
- 34 of 51 jurisdictions clear 90%
- 20.5 million students live in 18 states with no existing ESA, voucher, or tax credit scholarship program
- $1,700 dollar-for-dollar credit per donor, doubled for joint filers, with a five-year carryforward
Eligibility
A student qualifies if household income sits at or below 300% of the local area median gross income, adjusted for family size. Nationally that averages roughly $330,000 for a family of four, ranging from about $234,000 in Mississippi to nearly $500,000 in Washington, D.C.
Only 3.9 million children nationwide live above that line — no income cliff most families will ever hit, unlike the phaseouts attached to other education savings accounts.
The catch is geography. Scholarships only reach students in states whose governors opt in. AFC counts 31 states in, home to 30.9 million eligible children, or 59.8% of the total. The other 19 states and D.C. hold 20.8 million kids, including California's 5.9 million — the largest pool in the country.
That runs ahead of the 27 states the IRS has formally confirmed, because AFC counts governors who signaled intent but haven't filed.
AFC CEO Tommy Schultz is pressing the holdouts: "every governor needs to opt in so that all of them can benefit," he said, adding of those still weighing it, "what are you waiting for?"
How This Connects
The credit is part of a broader expansion of tax-advantaged education money. The same law drove 2026 changes to 529 plans that raised the annual K-12 withdrawal limit to $20,000 and added credentialing and training costs, so parents in opted-in states could pair a scholarship with withdrawals already permitted under qualified 529 expense rules.
Treasury still has to finalize Section 25F regulations, and its June 2026 preview signaled some questions will defer to state law. Governors in undecided states face a decision before the 2027 tax year, and 30 Senate Democrats have introduced legislation to repeal the credit outright — a bill facing long odds under Republican majorities.
Almost every American family with a school-age child will be income-eligible for this program. Whether that eligibility turns into an actual scholarship comes down to whether your state has signed on.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
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