(WASHINGTON) -- The Trump administration is readying its new, controversial federal school choice program that administration officials contend will “supercharge” education for millions of families nationwide, while critics worry it could undermine funding for public schools.

Officials from the Treasury and Education departments on Thursday released the rules for its Education Freedom Tax Credit, a new program that allows students and families to use taxpayer-funded scholarships for the K-12 education of their choice. The program, passed into law in 2025 as part of the Republicans' sprawling tax and spending bill, launches on Jan. 1. 

The program works by creating incentives for individuals and organizations to donate money they would otherwise owe in taxes to non-profit charities known as Scholarship Granting Organizations (SGOs). Those SGOs would in turn use the donations to fund K-12 student scholarships for students’ education, including tuition, academic services and supplies, as well as other equipment and services relevant to their enrollment in public, private, and other school options. The SGOs' money can be used for everything from private school tuition to books and supplies for public school students to homeschooling needs. All spending from the SGOs would be reimbursed by the federal government.

The Treasury Department and the Internal Revenue Service estimate the program will cost around $26 billion annually and fund as many as 2.2 million scholarships each year by 2030.

Public school advocates have expressed concern that the Education Freedom Tax Credit will steer government money away from state-funded public schools towards private schools.

The new rules are forcing skeptical Democratic governors to choose whether or not they want to opt in -- choosing to walk away could mean the loss of millions of dollars in federal funding. They have until Jan. 1 to decide.

“It will be the largest budgetary shift for K-12 [education] certainly in 11 years,” Narric Rome, managing director for government relations at education nonprofit Accelerate, told ABC News.

“For some states, and for some parts of the country, this is a ‘Help is on the way,’ and for others, it's a concern of where are their dollars going and are they going to the students that need it the most,” he said.

The Trump administration argues that if states opt-in to the program, funds can be used for both public and private school students and their educational needs. Treasury Secretary Scott Bessent said the administration is transforming America’s education system to “meet the needs” of each student.

Rep. Gwen Moore, D-Wis., has decried the advancement of the tax credit -- $1,700 for individuals or up to $3,400 for married couples filing jointly.

“It's not for public schools,” said Moore, whose mother was a public school educator. "People will argue that they're making an investment in education, but they're only making an investment in these private academies. 
They're not making investments in public education,” she argued.

“People are not going to get a $1,700, 100% tax credit, which doesn't exist anywhere else in tax law, which means it's a direct pull from the treasury to go into one of these corporate entities for private schools,” she argued.

Many Republican-controlled states have already opted in to the program. As 28 million children in participating states will become eligible starting next year, conservatives argue it gives “countless students” the chance to pursue the education they deserve with less bureaucracy.

So far, Democratic governors in North Carolina, Virginia, Colorado and New York have indicated that they will participate.

“Education freedom is the key to unlocking opportunity and success for our next generation of students,” Education Secretary Linda McMahon told ABC News in a statement.

“I am profoundly grateful to President Trump and our partners at Treasury for ensuring that every child has access to the education they need, not one limited by ZIP code, family income, or government‑imposed barriers,” she wrote.

Under the proposed rules and safe harbors, approximately 96% of children in participating states would be eligible to receive the scholarship funds, according to the agencies.

The program establishes a new, permanent, dollar-for-dollar credit of up to $1,700 for individuals for donations to non-profit scholarship-granting organizations (SGOs) or up to $3,400 for married couples filing jointly, according to the Treasury Department.

The regulations released on Thursday state that families' income eligibility limit is three times the median income for the county or metro area they live in adjusted for family size. Eligibility is determined by families who live in states that have opted into the program.

There will be a 60-day comment period before final implementation of the program. Donations start Jan. 1, but states have until Feb. 15 to submit their list of SGOs.

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