Federal school programs would stop as money moves to student accounts

The Education Secretary would wind down covered federal school programs. This covers programs under a referenced federal education law whose main purpose is elementary or secondary education. It excludes the student account program. Congress could not set aside money for covered programs beginning when the bill becomes law. Money not yet committed when a program stops would go to the student account program. The Education Secretary would choose each program’s shutdown date, no later than June 30, 2027.

Parents with funded student accounts could pay allowed education costs when their children do not attend public school. Students must not have finished secondary school and must be eligible, or become eligible, to attend school. Each student and at least one parent must be U.S. citizens or nationals. For public school students, annual federal account deposits would go to their school districts; parents could spend parent and state contributions on allowed costs.

Treasury would convert school accounts into accounts for college and job training. Converted accounts could pay college costs, career training costs, and other education expenses after high school that Treasury allows. States could require their contributions to transfer to the converted account or return to the state. Conversion would occur at secondary-school completion or when the student becomes too old for public school, whichever comes first. Converted accounts would close on the holder’s 30th birthday.

Parents could deduct contributions to their children’s school accounts from federal taxable income. These provisions cover contributions to and withdrawals from School Freedom Accounts. Parents could claim the deduction without listing individual deductions on their tax returns. Employer contributions would not count as income for the employee parent or child. Withdrawals would be tax-free only when used entirely for allowed education expenses. These tax rules would apply to tax years ending after the bill becomes law.

Repeated withdrawals outside allowed education uses could lead to jail. The rules cover school and converted accounts. For account holders under 18, the person authorizing the withdrawal would bear responsibility. The exception for disability under federal tax rules or death would apply to the account holder. For school accounts held by children under 18, it would instead apply to the person authorizing the withdrawal. Converted accounts would also exempt withdrawals traced to transferred parent contributions from penalties. Earlier school-account violations would count when applying penalties after conversion.