What Is a Scholarship Granting Organization (SGO)?

A Scholarship Granting Organization (SGO) is a nonprofit organization that receives financial contributions and delivers scholarships to eligible K–12 students. Under the Education Freedom Tax Credit (EFTC), SGOs connect taxpayer contributions with educational opportunities for students and families.

Beginning January 1, 2027, eligible individual taxpayers can make a dollar-for-dollar federal tax credit of up to $1,700 when they contribute to a qualified SGO. Participating states identify the SGOs that can receive qualified EFTC contributions for scholarships delivered in that state.

That makes SGOs central to the EFTC. They do more than receive contributions. They help turn the federal tax credit into scholarships and educational opportunities for eligible K-12 students.

What Role Do SGOs Play in the Education Freedom Tax Credit?

Under the EFTC, Scholarship Granting Organizations serve as the bridge between taxpayers who contribute and students who benefit from scholarships.
The basic process works like this:

1. A state opts into the EFTC. States must elect to participate and identify qualifying SGOs for the applicable year.
2. An eligible taxpayer contributes to a qualifying SGO. Beginning in 2027, qualified contributions may be eligible for a federal tax credit of up to $1,700.
3. The SGO administers scholarship funds. Federal law establishes requirements for how qualified contributions are managed and used.
4. Students receive scholarship funds. SGOs deliver scholarships to students for qualifying educational resources in participating states.

The EFTC is a federal initiative, but state participation matters. States must opt-in to participate and must identify an eligible SGO. Only states that opt-in will have access to the funds raised. However, all eligible taxpayers may participate in this initiative. An SGO must appear on the applicable participating state’s annual SGO list for contributions to qualify under the EFTC.

What Does an SGO Have to Do Under the EFTC?

Not every nonprofit that provides scholarships automatically qualifies as an SGO for the Education Freedom Tax Credit.
Federal law establishes specific requirements. Among them, an EFTC SGO must be a qualifying 501(c)(3) public nonprofit, maintain separate accounts for qualified contributions, and meet requirements governing how scholarship funds are used.
Key statutory requirements include:

SGO requirement	What it means
Nonprofit status	The organization must meet federal tax-exempt requirements and cannot be a private foundation.
Scholarship use	The SGO must meet federal requirements for using qualifying funds for scholarships.
Separate accounts	Qualified EFTC contributions must be kept separate from other funds.
Student reach	Scholarships must be provided to at least 10 eligible students who do not all attend the same school.
Student eligibility	SGOs must verify applicable student household income and other eligibility requirements.
State listing	The SGO must be authorized in a participating state before it can administer scholarship funds to students. It also must be included on the applicable participating state’s annual SGO list.
Allocation Amount	SGOs must allocate at least 90% of revenue to scholarships and may not earmark funds for a specific student.

These requirements help ensure scholarship funds are managed responsibly and reach eligible students. This includes those seeking educational opportunities at qualified private schools. SGOs must manage contributions, student eligibility, scholarship delivery, recordkeeping, and compliance while connecting families with educational opportunities.

How Do Taxpayers Work With an SGO?

For taxpayers, the SGO is where an EFTC contribution is made.

Beginning January 1, 2027, individual taxpayers can make contributions to qualifying SGOs. The EFTC provides a dollar-for-dollar federal income tax credit of up to $1,700 per taxpayer per taxable year. The credit is nonrefundable, which means its immediate value depends on the taxpayer’s federal income tax liability. Unused credit may generally be carried forward for up to five years.

This is different from making a typical charitable donation and claiming a deduction. A tax credit directly reduces federal income tax liability, and cannot also be claimed as a charitable deduction.

Taxpayers should consult a qualified tax professional about how the EFTC applies to their individual circumstances.

How Do SGOs Help Students and Families?

SGOs turn qualified EFTC contributions into educational opportunities for eligible K–12 students, both in the public and private sector.

Under federal law, student eligibility includes household income requirements. Scholarship funds can support qualified educational expenses, subject to federal requirements.

For families, that means the EFTC can help make more resources available through scholarship dollars. Depending on applicable requirements, qualified expenses can include categories such as tuition, tutoring, technology, special needs services, and other qualifying K-12 educational expenses.

Scholarship availability also depends on state participation. ACE can collect EFTC contributions across the country, but EFTC-funded scholarships can only be delivered in participating states.

Why Does SGO Experience Matter for the EFTC?

The EFTC creates a new federal opportunity, but administering scholarships is not new work for ACE Scholarships.

For more than 25 years, ACE has helped connect students and families with educational opportunities through privately funded and tax-credit scholarships. That experience includes scholarship administration, working with schools and families, and managing the processes required to turn contributions into scholarships.

ACE has also developed EmpowerEd by ACE Scholarships, the only co-branded, end-to-end scholarship management platform driven by a national Scholarship Granting Organization (SGO) who has delivered scholarships for more than 25 years. EmpowerEd helps participating organizations manage key parts of the scholarship experience while ACE brings its scholarship expertise to the work.

Together, that experience and infrastructure help prepare ACE to support the new opportunities created by the EFTC.

Why SGOs Matter to the Future of Educational Opportunity

The Education Freedom Tax Credit gives individuals a new way to help make educational opportunity possible, and SGOs are what connect that participation to students.

As participating states implement the EFTC, qualifying SGOs will help manage contributions, verify eligibility, administer scholarships, and support accountability. For taxpayers, understanding the SGO they contribute through is an important part of understanding the tax credit itself. For families, SGOs are part of the pathway through which EFTC-funded educational opportunities become available.

That is why an experienced, trusted scholarship granting organization matters as the EFTC takes effect.

Learn More About the Education Freedom Tax Credit

The EFTC begins January 1, 2027, and participation depends on state and federal requirements that are still being implemented.

Learn more about how the Education Freedom Tax Credit works, whether your state is participating, and what the EFTC could mean for taxpayers, families, schools, and other organizations.