How New Federal Rules Could Impact Private Colleges’ DEI Programs

The Trump administration is taking another step toward limiting diversity, equity and inclusion (DEI) programs in higher education, this time targeting the tax-exempt status of private colleges and universities.

The administration is proposing new rules that could allow the federal government to remove a school’s tax-exempt status if it uses race as a factor in programs such as admissions, scholarships or access to certain educational opportunities. The proposal, announced Thursday (Sept. 3), is aimed at colleges that the administration believes are using race-conscious policies in ways that violate federal civil rights laws.

This proposal follows a broader trend that began with President Donald Trump’s executive order targeting DEI programs across the federal government. As we previously reported, the administration’s policies have led to widespread layoffs and the termination of hundreds of thousands of federal positions.

Now, administration officials say the latest goal is to make sure schools treat students equally, regardless of race. They argue that colleges should not be able to maintain tax benefits while operating programs that give preference to students based on their racial background.

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The proposal could have a broad impact. An estimated 18,000 private schools and colleges could be affected if the rules are finalized, according to data from the Treasury Department.

Losing tax-exempt status would be a serious financial blow for many institutions. Experts say colleges could face higher costs and could also see consequences for charitable donations, since tax deductions are an important incentive for people who give money to nonprofit schools.

College leaders and higher education groups have pushed back against the administration’s approach. They argue that many DEI programs are designed to expand access and support students who have historically faced barriers in education. They also warn that the new rules could make colleges uncertain about which programs are allowed and could lead to lengthy legal battles.

The administration is pointing to a case from the 1970s involving Bob Jones University, a conservative private university in Greenville, South Carolina, as a legal precedent. The federal government took away the school’s tax-exempt status because of the university’s policies prohibiting interracial relationships. The Supreme Court ultimately upheld the government’s decision in 1983, establishing that tax-exempt organizations can lose that benefit when their policies conflict with fundamental public policy.

In 2026, schools are now facing pressure not only to reconsider their DEI programs but also to evaluate the potential financial consequences of keeping them.

The proposal is still subject to the federal rulemaking process and could face legal challenges. For colleges, the debate could ultimately affect their finances, fundraising and relationship with the federal government.