Proposed Federal Rule Threatens DEI at Private Universities

An Elmhurst student utilizes The Nest, formerly El Centro, on Elmhurst University’s campus. // Photo by Star Herring

Private schools have been around for almost 400 years and have had tax-exempt status since 1909. This allows those schools to not pay taxes due as long as they operate as a charitable and educational organization. This may be changing in May 2027 and it could make some schools change their decisions regarding diversity, equity, and inclusion programs.

“Under the proposed rule, a private school would not qualify for Federal tax-exempt status under section 501(c)(3) if it adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin,” said the IRS, which is in charge of this regulation. “The rule would apply across admissions, educational policies, scholarships and loans, athletics, and every other school-administered or school-supported program.”

According to PBS, since 2025, there have been around 400 centers and programs that have been cut since they promoted DEI initiatives. At EU, funding cuts resulted in the loss of El Centro, now turned into The Nest. The Nest was introduced as a space to grow campus diversity and provide a space for the campus to come together without needing the fluctuation of federal funding.

“I wouldn’t think that necessarily, there has to be a specific program for DEI, but ideally, we would want to see inclusive practices and policies embedded throughout a school or an institution,” said Joseph Elliott, Ed.D., associate professor of education and associate chair of licensure. “Whether it’s in the classroom, whether it’s part of, schools or institutions, policies. I think it’s still possible.”

According to self-reported information from universities themselves, private universities received $24 billion in private donations in 2024, which only accounted for 8% of their revenue. Elmhurst itself has received $3,502,904 in private donations in 2024, according to The Chronicle. If schools lose federal funding, even something as simple as their tax-exempt status for schools that bring in less in private donations could cause some financial struggle.

When schools lose their tax-exempt status it will hit every school differently, said Constance Mixon, Ph.D., professor of political science and director of the urban studies program. Bigger schools like Harvard or Stanford have their endowments in the billions of dollars compared to schools like Elmhurst nearing only a $200 million endowment; a loss of tax-exempt status could cause serious problems for the institution.

“Because this is currently a proposal, we would not want to speculate at this point, though we will continue to monitor and review its status,” said Desiree Chen, senior director of communications and external relations at EU.

These cuts are going to affect 18,000 private schools across K-12 and universities; these regulations are going through the comment period at the moment. The loss in status pertains to schools whose administration practices rely on race. It will also affect race-based scholarships, and race-based and cultural programs.

The Trump administration and the IRS are relying on a past decision and a Supreme Court case that was created almost as an antithesis of this new regulation. In 1983 the Supreme Court held up a decision by the IRS to cut Bob Jones University’s tax-exempt status due to their ban on interracial marriage and dating among students.

“When a federal agency proposes a new rule or regulation, it’s usually required by law to publish the proposal and open a window of time for public feedback,” said the Legal Defense Fund. “The time frame for submitting these comments usually varies, but will be announced through the Federal Register for federal agencies, as well as other government websites.”

The public comment period is going on for 60 days, and the IRS will need to create a public hearing if it is requested. This brings us to November 2026, and it will take many months to make final changes to the proposal, which brings us to their date of May 2027.

“They’re doing it through rulemaking right now,” Mixon said. “This is the more traditional rulemaking process that you would normally see instead of executive order. Executive orders are very unusual in most administrations. This administration, however, is using a lot of executive orders, so it’s almost when they do something the normal way, it’s seen as unusual.”

The Federal Register has all of the proposals from government agencies. Any citizen can go on FederalRegister.gov and can make a comment to the record on a proposal for the agency’s review