Federal Education Freedom Tax Credit
A new way to fund your child's education — starting 2027
What Is This?
In July 2025, the federal government created a new tax credit that helps fund K-12 education. Iowa has opted in to this program, which means Iowa families can benefit starting in 2027.
The short version: This is a second funding source for education — separate from Iowa's ESA program. The federal tax credit works through non-profit scholarship organizations that collect donations and distribute scholarships to eligible families.
Do You Qualify?
Probably yes. The income limit is much higher than most people think.
| Your Location | Income Limit (Family of 4) |
|---|---|
| Des Moines area | ~$343,500/year |
| Cedar Rapids area | ~$304,800/year |
| Rural Iowa | ~$299,400/year |
Unless your family earns over $300,000/year, you likely qualify. This covers about 95% of Iowa families.
How It's Different from Iowa ESA
| Iowa ESA | Federal Tax Credit | |
|---|---|---|
| Source | State of Iowa | Federal tax code |
| Amount | $7,988/year per student | Varies (from scholarship pool) |
| Eligibility | All Iowa K-12 students | Families up to 300% of Area Median Income |
| How You Get It | Apply to Iowa DOE, funds go to Odyssey | Apply to a Scholarship Granting Organization (SGO) |
| Available | Now | January 2027 |
Can you use both? Yes — these are separate programs. Most families can receive both Iowa ESA funds AND a federal scholarship.
How It Works
Step 1: Find a Scholarship Granting Organization (SGO)
SGOs are non-profits that collect donations and give scholarships to students. Iowa already has several that will likely be certified:
- Iowa Alliance for Choice in Education (IACE)
- STO of Southeast Iowa
- Heart of Iowa School Tuition Organization
- And others
Step 2: Apply to the SGO
You apply directly to the SGO — not the government. You'll need to prove your household income.
Step 3: Receive Your Scholarship
If approved, the SGO pays your education provider (school, tutor, etc.) directly. The money goes to your "account" that you control, but you can't cash it out — you select where it goes and the SGO pays the provider.
What Can the Scholarship Pay For?
The "Education Freedom" aspect means these funds can cover a wide range of educational expenses — not just tuition.
Covered expenses include:
✅ Private school tuition and fees ✅ Tutoring (math, reading, etc.) ✅ Educational therapy (speech, occupational, behavioral) ✅ Laptops, tablets, and educational software ✅ Textbooks and curriculum materials ✅ Dual enrollment college courses for high schoolers ✅ Transportation to your school of choice
This is especially helpful for families who need services beyond what a school provides — like tutoring or special education support.
What This Means for ISP Families
If you enroll in ISP, here's how these funding sources could work together:
| Expense | Funding Source |
|---|---|
| ISP Tuition ($7,988) | Iowa ESA (covers 100%) |
| Training Credits ($1,200/year) | Federal scholarship |
| Laptop/Technology | Federal scholarship |
| Tutoring | Federal scholarship |
| Transportation | Federal scholarship |
Bottom line: Between Iowa's ESA and the new federal scholarships, ISP families can potentially cover tuition AND supplemental services at little to no out-of-pocket cost.
Timeline
| Date | What Happens |
|---|---|
| July 2025 | Law signed |
| 2025-2026 | States opt in, SGOs get certified |
| January 2027 | Program officially starts |
| 2027+ | Families can apply and receive scholarships |
For Donors (Parents, Grandparents, Community Members)
Want to help fund scholarships? Here's how the tax credit works:
| What You Do | What You Get Back |
|---|---|
| Donate $1,700 to an SGO | $1,700 federal tax credit |
| Net cost to you | $0 |
It's essentially free to support ISP families — you just redirect money you'd otherwise pay in taxes.
Pro tip: If you're married and file jointly, the cap is $3,400.
Note: Iowa also has an existing state tax credit (75% back) if you want to donate more than the federal cap allows.
Frequently Asked Questions
Q: Do I have to choose between the ESA and the federal scholarship? No. They're separate programs. Eligible families can use both.
Q: What if my family earns a lot — do we still qualify? If you earn under ~$300,000/year (for a family of 4), you likely qualify. The limit is much higher than most people think.
Q: How do I know if the scholarship will go to ISP families? Donors can designate their donation to a specific school's scholarship fund. ISP will partner with SGOs so community members can donate knowing it supports ISP students.
Q: When can I apply? The program starts January 2027. Watch for Iowa's list of approved SGOs.
Q: Will ISP help me navigate this? Yes. When the federal program launches, we'll provide guidance on how to apply and coordinate with your ESA.
For More Information
- What Is ESA? — Understanding Iowa's state program
- Eligible Expenses — What ESA can pay for
- ESA vs Open Enrollment — Comparing your options
Note: This guide reflects information available as of January 2026. Details may change as the federal program is implemented. We'll update this guide as Iowa publishes official guidance.