Treasury proposal would strip tax-exempt status from universities that maintain DEI programs

Higher education associations reacted within hours. In a statement, Tim Powers, whose role is identified in the reporting as a higher education representative commenting on behalf of institutions, said: 'Our institutions are committed to complying with applicable civil rights laws and maintaining safe and supportive campuses free from discrimination. However, the proposed rule may create new compliance burdens and legal uncertainties for institutions of higher education that are already operating in line with existing nondiscrimination rules.'

Reaction from higher education

The proposal lands as several elite institutions are already locked in disputes with the Trump administration over admissions and campus policies. Harvard has been at the center of those battles, and the new rule would expand the leverage Washington can exert over schools that refuse to alter their programs. The Treasury rule could pressure boards of trustees to dismantle DEI offices, faculty recruitment pipelines, and scholarship funds tied to demographic categories, or risk losing the tax status that underpins donations, endowments, and operating budgets.

Treasury Secretary Scott Bessent has been a leading voice in shaping the administration's economic policy and has championed the use of regulatory tools to pursue political goals. Supporters of the rule argue that it restores colorblind admissions and treats all applicants equally. Critics counter that the change would unwind decades of efforts to broaden access for students from underrepresented backgrounds and would chill academic programs that examine racial and ethnic history.

Legal and financial stakes

The tax code has historically given private universities wide latitude, and the Internal Revenue Service rarely intervenes in campus operations. Under the proposed framework, however, DEI would become a metric the agency could audit. Universities would need to document the absence of such programs, or face the prospect of paying federal income tax, a financial shift that could reshape budgets at institutions whose endowments and donor bases depend on the exemption.

Legal experts noted that revoking tax-exempt status is a more aggressive lever than the funding cuts and consent decrees the administration has previously used against universities. They expect litigation to focus on whether the Treasury Department has the authority to equate DEI with a violation of civil rights law, and on whether the rulemaking process followed federal administrative procedure. A similar rule on accreditation is already moving through a separate regulatory track.

Beyond the courtroom, the proposal is expected to ripple through college admissions, faculty hiring, and corporate diversity programs that partner with universities. Some state legislatures have already moved to restrict DEI in public higher education, and a federal tax exemption change would extend that pressure to private schools for the first time. University counsel and boards have begun reviewing which programs would be affected and whether any can be restructured to comply.

What happens next

The public comment period is expected to run for at least 60 days, after which Treasury and the IRS would review feedback and issue a final rule. Until then, schools face a period of uncertainty about whether to suspend programs preemptively or continue them and risk the consequences. Several institutions have indicated they will submit comments opposing the rule, while others have already begun scaling back offerings.

The broader political fight over DEI shows no sign of abating, with the administration signaling that higher education remains a central battleground. Whether the rule survives legal scrutiny will determine whether the tax code becomes the administration's most powerful tool yet in reshaping American universities.