School Freedom Act of 2026
- Sponsor
- Rep. Mace, Nancy [R-SC-1]
- Committees
- Education and Workforce Committee (primary)
- Last action
- Oct 13, 2026
Bottom line
This bill fundamentally shifts federal elementary and secondary education funding from institutional grants to individual, parent-controlled accounts, significantly expanding school choice options and reshaping the federal role in education.
What it actually does
This bill terminates most federal elementary and secondary education programs by June 30, 2027, and redirects their funding into new "School Freedom Accounts" (SFAs) managed by the Treasury Department. Parents can use SFA funds for a wide range of educational expenses, including private school tuition, homeschooling materials, or direct them to the public school their child attends. Unused SFA funds convert to "Higher Education and Skills Obtainment Funds" (HESOFs) for postsecondary education.
Proponents argue
Supporters argue this bill empowers parents by giving them direct control over their child's education funding, fostering competition among educational providers, and allowing funds to follow the student to the best educational environment, whether public, private, or home-based. They contend it reduces federal bureaucracy, increases educational freedom, and promotes innovation across the education sector.
Opponents contend
Opponents contend that this bill would defund public schools, particularly those in underserved areas, by diverting federal resources away from established programs designed to support all students and address specific needs. They raise concerns about accountability for how funds are spent outside of public institutions, potential for fraud, and the immense administrative burden on the Treasury Department to manage millions of individual accounts.
The bill is moderately complex due to its structural changes to federal education funding and amendments to the tax code, requiring careful reading to understand its full implications.
Section 2
Termination of Federal Elementary and Secondary Education Programs
This section mandates the termination of most existing federal elementary and secondary education programs by June 30, 2027. It prohibits new federal appropriations for these programs starting from the bill's enactment date and directs any unobligated funds from these terminated programs to the new School Freedom Account program. The Secretary of Education is also required to submit a reorganization plan for the Department of Education.
Supporters argue
Proponents argue this streamlines federal education spending, eliminates redundant or ineffective programs, and shifts control closer to parents and local communities, reducing bureaucratic overhead.
Critics contend
Opponents would contend that terminating these programs would dismantle critical support structures for public schools, especially those serving disadvantaged students, potentially exacerbating educational inequities and leaving vulnerable populations without targeted federal assistance.
Tradeoffs
This provision balances the desire for reduced federal involvement and increased local control against the potential disruption to established educational support systems and funding streams for public schools.
Section 3(a)-(d)
Establishment and Funding of School Freedom Accounts (SFAs)
This section directs the Secretary of the Treasury to establish "School Freedom Accounts" (SFAs) for eligible K-12 students. These accounts will receive an annual federal deposit equal to the per-pupil federal expenditure, with an additional $2,000 (indexed to inflation) for children with disabilities. Parents and states are also permitted to deposit funds into these accounts, which are classified as "Parental SFA Funds" and "State SFA Funds" respectively.
Section 3(e)-(f)
Parental Control and Permitted Uses of SFA Funds
Parents gain control over SFA funds. They can elect to either direct the annual federal SFA funds to the public school their child attends or, if their child does not attend public school, access all SFA funds (federal, parental, state) to pay for a wide range of educational expenses. Permitted uses include private school tuition, homeschooling materials, tutoring, vocational training, educational therapies, and extracurricular activities. If a parent fails to act, federal SFA funds are disbursed by default to the local educational agency serving the child's last known address.
Section 4
Conversion to Higher Education and Skills Obtainment Funds (HESOFs)
Upon completing secondary school or reaching the age of ineligibility for K-12, any remaining SFA funds are automatically converted into a "Higher Education and Skills Obtainment Fund" (HESOF). These funds can be used for various postsecondary educational expenses, including higher education tuition or career and technical education. Federal HESOF funds are returned to the Treasury if unused by age 30, while parental and state funds have different rules for disposition.
Section 5
Tax Treatment of School Freedom Accounts and HESOFs
This section amends the Internal Revenue Code to establish SFAs and HESOFs as tax-exempt savings accounts. Parental contributions to SFAs are tax-deductible, and employer contributions are excluded from gross income. Distributions for qualified expenses are tax-free. However, non-qualified distributions incur significant tax penalties (20% for the first, 50% for subsequent) and potential criminal penalties (up to 1 year imprisonment for the third and subsequent offenses).
Section 9
GAO Reporting Requirements for Oversight
This section mandates the Government Accountability Office (GAO) to submit a one-time report within 18 months of enactment, reviewing the wind-down of federal education programs and the initial implementation of SFAs. Annually thereafter, GAO must submit reports containing data on SFA deposits, fund usage (e.g., private school, homeschooling), rollovers, conversions to HESOFs, and HESOF expenditures, along with assessments and recommendations for program improvement.
Imposes criminal penalties of up to 1 year imprisonment for the third and subsequent non-qualified payments or distributions from School Freedom Accounts or Higher Education and Skills Obtainment Funds, in addition to significant tax penalties.
Section 5(a), adding IRC Sections 530B(c)(3)(A)(ii) and 530C(c)(3)(A)(ii)
Why it matters:This is standard legislative practice for amending the Internal Revenue Code, but the severity of criminal penalties for financial mismanagement related to educational funds might be unexpected by a casual reader, especially when combined with prior tax penalties.
Case for: Proponents would argue that severe penalties are necessary to deter fraud and ensure the integrity of a program involving direct public funds, protecting taxpayer money and the program's reputation for fiscal responsibility.
Case against: Opponents might argue that criminal penalties, especially for what could be administrative errors or minor misuses, are overly harsh, particularly for parents navigating a new and complex financial system. They may suggest such penalties could disproportionately affect lower-income families or those with less financial literacy.
Estimated impact: This provision creates a strong legal deterrent against repeated misuse of SFA and HESOF funds, potentially affecting any individual who repeatedly makes non-qualified expenditures.
If a parent of an eligible individual with a School Freedom Account fails to notify the Treasury Secretary that the individual is not attending a public elementary or secondary school for a school year or fails to approve the disbursement of Federal SFA Funds to the local educational agency (LEA), the annual federal SFA funds are automatically disbursed to the LEA serving the individual's last known address.
Section 3(e)(2)
Why it matters:This is a practical administrative detail designed to ensure that federal funds intended for education are still directed to a public school if a parent is unresponsive, preventing funds from remaining stagnant or unutilized. It serves as a default mechanism.
Case for: Proponents would argue this ensures that federal funds are always directed to an educational entity, providing a safety net for public schools and preventing funds from being lost or unutilized due to parental inaction or administrative oversight.
Case against: Critics might argue that this default mechanism undermines the principle of parental choice if funds are directed without explicit parental consent, and could lead to funds being sent to an LEA that the child does not actually attend if address records are not perfectly updated.
Estimated impact: This provision could affect a significant portion of federal SFA funds, particularly for families who are less engaged with the administrative process or have outdated records, ensuring continued funding for public schools in such cases.
Explicitly states that nothing in the Act shall be construed to affect any aspect of private, religious, or home education providers, exclude them from receiving funds from a School Freedom Account, or require them to alter any creed, practice, admissions policy, or curriculum in order to receive funds.
Section 7
Why it matters:This is a standard legislative technique to provide legal clarity and protection for specific entities, often to address constitutional concerns (e.g., First Amendment religious freedom) or assuage specific interest groups regarding the autonomy of non-public educational providers.
Case for: Proponents argue this provision is essential to ensure that the bill genuinely expands educational freedom by protecting the autonomy and distinct character of diverse educational providers, particularly religious schools and homeschooling families, from federal interference or mandates.
Case against: Opponents might argue that this provision allows private and religious schools to receive public funds without being subject to the same accountability, transparency, or non-discrimination requirements that typically apply to public institutions receiving federal funding, potentially creating an uneven playing field.
Estimated impact: This provision ensures that a wide range of educational providers can participate in the SFA program without compromising their institutional identity or mission, thereby broadening the scope of parental choice.