TL;DR

  • A Scholarship Granting Organization (SGO) is a nonprofit that takes ECCA donations and turns them into K–12 scholarships.
  • To operate under ECCA, an SGO must be on the list submitted by its state’s governor to the U.S. Treasury each January 1.
  • ECCA enforces a 90/10 rule: at least 90% of donations must go to scholarships; no more than 10% may go to administrative expenses.
  • Donors choose the SGO that aligns with the students, schools, or regions they want to support. SGOs vary widely — some are regional, some are sector-specific (Catholic, special-needs, microschool, etc.).
  • For families, the SGO is the entry point: applications, eligibility verification, awards, and disbursement all flow through the SGO.

What an SGO is

A Scholarship Granting Organization is a tax-exempt nonprofit (typically a 501(c)(3)) whose primary mission is to award K–12 scholarships using funds donated under the Federal Scholarship Tax Credit (FSTC) — the same program known to Congress as the Educational Choice for Children Act (ECCA) and codified at IRC §25F. The model isn’t new: many states have run their own scholarship tax credit programs through similar nonprofit intermediaries for years. The FSTC creates the first nationwide federal version.

SGOs serve three constituencies: donors (who give and claim the federal credit), families (who apply for and receive scholarships), and educational providers (who receive scholarship payments on behalf of students).

How SGOs get designated

  1. The organization meets baseline federal criteria. It must be a tax-exempt nonprofit, structured to comply with ECCA’s rules (including the 10% admin cap), and capable of administering scholarships at scale.
  2. The state has opted in. No SGO can operate under ECCA in a state whose governor hasn’t submitted a participation notice to the Treasury.
  3. The governor (or designated authority) submits the SGO on the state’s annual list. The list is filed with the U.S. Treasury by January 1 each participating year.
  4. The IRS confirms inclusion. Once on the list, the SGO is officially eligible to receive ECCA donations and issue credit-substantiation documents.
State-level oversight: Some states are layering additional oversight on top of federal requirements — nondiscrimination provisions, academic reporting, financial audits, etc. These state-level rules affect which SGOs operate in the state and how they function.

The 90/10 rule

Per §25F(d), an SGO must spend at least 90% of its income on scholarships for eligible students. The remaining 10% may be used for administrative expenses. The statute uses the word “income” (not “donations”), which is a stricter standard than typical nonprofit pass-through ratios (where 70–85% program-spending is considered strong).

What counts as administrative expense?

  • Salaries and benefits for SGO staff (excluding direct scholarship-administration roles, which may be allocated differently)
  • Office space, utilities, equipment
  • Marketing, fundraising, donor stewardship
  • Professional services (legal, audit, accounting)
  • Compliance and reporting

SGOs structure their operations carefully to stay within the 10% cap while still meeting federal and state compliance demands. Many use technology to automate eligibility verification, awards, and disbursement to keep overhead low.

How donors choose an SGO

Donors typically pick an SGO based on:

  • Geography: Donors who want their dollars to support students in their home community pick an SGO operating there.
  • Mission: Some SGOs focus on Catholic schools, others on special-needs students, others on microschool networks, others on a broad mix.
  • Track record: An SGO’s history with prior state scholarship programs is a strong signal of its administrative capacity.
  • Transparency: Reputable SGOs publish award criteria, financials, and outcomes. Donors should look for these materials before giving.

The official Treasury list of designated SGOs becomes available once states submit their annual lists ahead of the program’s January 2027 launch. See our SGO directory page for the current status and trusted third-party trackers.

Self-dealing rules

§25F(d) prohibits SGOs from awarding scholarships to “disqualified persons” as defined in IRC §4946 — a category that generally includes substantial contributors, officers, directors, and their family members. The rule prevents SGO insiders from steering funds to their own families and protects the integrity of awards.

How families work with an SGO

For families seeking a scholarship, the SGO is the front door. The family submits an application directly to one or more SGOs serving their state. The SGO verifies eligibility (income, residency, K–12 enrollment) and either makes an award or places the family on a waitlist depending on funding availability.

Once awarded, scholarships are typically paid directly to the school or service provider on behalf of the student, rather than to the family, to ensure funds are used for qualifying educational expenses.

How to start an SGO

Starting an SGO is a multi-step process. The high-level path:

  1. Form a nonprofit and obtain 501(c)(3) status from the IRS. This is foundational and typically takes 3–9 months.
  2. Build administrative infrastructure to handle eligibility verification, awards, disbursement, and reporting within the 90/10 budget constraint. Most new SGOs license technology platforms rather than building from scratch.
  3. Engage with state authorities about getting on your state’s annual SGO list. Each state has its own application process layered on top of federal designation.
  4. Establish school/provider relationships so awarded scholarships have somewhere to go. Most SGOs partner with a network of schools rather than working with each one ad hoc.
  5. Plan a donor-development strategy. Even with the federal credit, SGOs need to attract and retain donors. Marketing and donor stewardship are part of the 10% admin budget.

Compliance and reporting

SGOs must comply with multiple layers of oversight:

  • Federal: IRS requirements for 501(c)(3) status, ECCA-specific rules (90/10, eligibility verification, anti-earmarking on donations).
  • State: Whatever the participating state imposes via its annual SGO list and oversight rules.
  • Donor substantiation: SGOs must issue donation acknowledgments donors can use to claim the federal credit.
  • Annual reporting: Most states require SGOs to publish annual reports on funds raised, scholarships awarded, and administrative expenses.

Frequently asked questions

What is an SGO?

A Scholarship Granting Organization (SGO) is a nonprofit that receives donations from federal taxpayers under the ECCA program and awards K–12 scholarships to eligible families. SGOs are the operational backbone of ECCA: they handle eligibility verification, scholarship awards, and disbursement to schools or providers.

How does an SGO become designated?

The governor of each participating state submits an annual list of qualifying SGOs to the U.S. Treasury by January 1. SGOs must be tax-exempt organizations meeting federal ECCA requirements (including the 10% administrative cap) and any state-level criteria.

What is the 90/10 rule?

ECCA caps an SGO's administrative expenses at 10% of donations received. At least 90% of every dollar donated must be awarded as scholarships. This is one of the strictest pass-through requirements among nonprofit categories.

Are SGOs the same as private schools?

No. SGOs are independent nonprofits that fund scholarships; they are not schools themselves. A single SGO typically funds students attending many different schools and educational providers.

Can I start an SGO?

Yes, if your organization meets federal nonprofit and ECCA requirements and your state designates it. Starting an SGO involves obtaining 501(c)(3) status, building scholarship-administration capacity, and getting on the governor's annual SGO list.