Eighteen thousand schools. That's how many institutions across the country could lose their tax-exempt status under a new regulation proposed by the Treasury Department and the IRS. The crime? Sorting Americans by skin color and calling it progress.
Turns out the one thing that changes institutional behavior faster than a protest or a hashtag is a tax bill.
Treasury Secretary Scott Bessent and Education Secretary Linda McMahon rolled out the proposed rule this week, targeting any school — K-12 or university — that uses race, color, or national origin as a factor in admissions, scholarships, loans, athletics, or, as the regulation puts it, "every other school-administered or school-supported program." That's not a narrow carve-out. That's the whole operation.
The move follows the Supreme Court's 2023 Students for Fair Admissions decision, which flatly prohibited race-conscious admissions at colleges and universities. The problem, as the administration sees it, is that schools heard the ruling and immediately started looking for workarounds. New labels. New euphemisms. Same sorting.
Bessent put it plainly: "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature."
That's the key sentence. Because what's been happening since the Supreme Court ruled is exactly what you'd expect — universities swapped "affirmative action" for "holistic review" and "equity-centered programming" and kept right on doing what they were doing. The new regulation says the IRS isn't buying the rebrand.
The scope is significant. Roughly 750,000 students currently qualify for race-based scholarships alone. That's three-quarters of a million students in programs that exist because of what they look like, not what they've accomplished. The regulation doesn't eliminate those students' ability to receive financial aid — it eliminates the racial filter. Schools can still target scholarships by income, geography, or first-generation status. They just can't use skin color as the sorting mechanism.
Religious schools get an exemption for selecting students based on religious affiliation, which is a separate constitutional lane and always has been.
Naturally, the academic establishment is treating this like a five-alarm fire. Todd Wolfson, president of the American Association of University Professors, called it "an affirmative attempt to turn civil-rights law against the very people it was enacted to protect." Which is an interesting way to describe a regulation that says you can't treat people differently based on race. That used to be the entire point of civil-rights law. Wolfson's objection only makes sense if you believe civil rights means permanent racial preference — which is exactly the position the Supreme Court rejected three years ago.
The regulation is subject to a public comment period, and legal challenges are already being telegraphed. None of that is surprising. What's surprising is that it took this long. The Students for Fair Admissions decision came down in 2023. Schools have had three years to keep running race-based programs under new branding while daring anyone to enforce the ruling. Now the enforcement has a dollar sign attached to it.
There's a reason this particular lever works. Universities don't respond to moral arguments. They don't respond to court rulings, apparently. But tax-exempt status is the financial oxygen of higher education. Tuition models, endowment structures, donor incentives — all of it runs through that tax designation. Threatening it doesn't just sting. It restructures the cost-benefit analysis overnight.
The proposal will be called extreme. It will be called an attack on diversity. It will be called government overreach by the same people who spent a decade demanding the government enforce racial quotas.
The regulation says treat everyone the same regardless of race. That used to be the liberal position. Now it's a proposed IRS rule, and the people who wrote the Civil Rights Act are calling it a violation of civil rights.