How to Start a Scholarship Granting Organization (SGO): A Step-by-Step Guide

What an SGO is, and why so many are forming now

A scholarship granting organization (SGO) is a nonprofit that collects donations and turns them into K–12 scholarships. States have used SGOs for decades: EdChoice counts 22 state tax-credit scholarship programs in 18 states. The new federal scholarship tax credit (26 U.S.C. 25F) adds a national layer from January 1, 2027. Treasury estimates that by 2030 the program could support 600 to 700 SGOs and nearly $26 billion a year in contributions.

If you're a school network, community foundation, faith group, tutoring nonprofit or parent group, you can start one. Read what a scholarship granting organization is for the donor's view first.

How to start a scholarship granting organization: the steps

1. Decide your model

• State tax-credit SGO. Your state sets the rules (names vary: STO, SSO, SO). Requirements, caps and credit rates differ widely, so start with your state's statute and the agency that approves organizations.
• Federal Section 25F SGO. Your state must opt in and list you. As of October 13, 2026, 31 states had opted in; see which states opted in.
• Both. Many existing state SGOs will add a federal account. Under Treasury's proposed rules, a single-state SGO whose activities are at least 85% scholarship granting can apply the operational tests to its Section 25F account alone.

2–3. Incorporate and get an EIN

Form a nonprofit corporation in your state with a purpose clause covering K–12 scholarships. Adopt bylaws, a conflict-of-interest policy and a board with independent members. Apply for an EIN.

4. Get 501(c)(3) public charity status

The federal credit requires a 501(c)(3) organization that is not a private foundation. File Form 1023 electronically through Pay.gov; the user fee is $600 (Form 1023-EZ, $275, is only for small organizations and rarely fits an SGO's scale). If you file within 27 months of forming and are approved, exemption dates back to formation. For 2027 only, BakerHostetler notes that an SGO can be on a state list if its exempt status will be effective by January 1, 2027.

5. Register to fundraise

Most states require charities to register before soliciting donations. The temporary regulations say an SGO is "located in" a state if it is authorized to do business there and complies with the state's general charity laws. Multistate SGOs must do this in every state where they want to be listed.

6. Write your scholarship policies

Your policies must satisfy Section 25F(d) and your state's program. At minimum:

• Eligibility: students eligible to enroll in public school with household income no more than 300% of area median gross income (federal). You may set a lower cap.
• Income verification: direct verification (pay stubs, tax returns, IRS transcripts, W-2s) or, under the proposed rules, categorical eligibility from a recent SNAP, TANF, WIC, Section 8 or SSI award letter.
• Priority: prior-year recipients first, then siblings of recipients.
• No earmarking of contributions for any particular student.
• Disqualified persons: no awards to substantial contributors, officers, directors, trustees, people who select recipients, or their family.
• Scope: you may narrow your mission, for example to tutoring, STEM or a lower income band.

7. Set up money controls

Keep qualified contributions in one or more segregated accounts. Under the proposed rules, tuition and other school charges go directly to the school; other vendors can be paid directly after verification, or through a "qualified digital wallet"; families can only be reimbursed with receipts. You'll also need fraud controls that stop the same expense being paid twice.

8. Register in the IRS SGO portal

The temporary regulations (effective December 1, 2026) require SGOs to register electronically through the IRS SGO portal with your name, EIN, address, phone, year formed, contact person and tax year. The IRS then gives instructions for generating each donor's unique donor number, which donors need to claim the credit. Register as soon as possible, ideally before you appear on a state list.

9. Get on your state's SGO list

For 2027, states had to file an advance election (Form 15714) by January 1, 2027 and submit their SGO list by February 15, 2027. In later years, lists are due by January 1. Contact the agency your governor designated well before then.

10. Run your first cycle

Open applications, verify income, award in priority order and pay schools and vendors. By January 31, send each donor a written acknowledgment with your EIN, their total qualified contributions, their unique donor number and any goods or services provided. By February 28, report donor totals to the IRS.

Budget for overhead from day one

Section 25F requires spending at least 90% of the organization's income on scholarships. Under the proposed rules, income generally means total gross receipts, but single-state SGOs using the 85% safe harbor measure only their Section 25F account, and multistate SGOs measure each state's account separately. You have until the end of the following tax year to meet the test, and spending counts when paid. In practice, plan to fund staff, software and audits from no more than 10% of Section 25F income plus separate general donations.

Build or partner?

Starting an SGO makes sense if you have a donor base, a clear mission and the staff to run compliance. If not, partnering with an established SGO (state groups like Step Up For Students in Florida, or national ones like ACE Scholarships) can get scholarships to your families faster. Browse the SGO directory for examples.

The software you'll need

You'll need four things: family applications and review, income verification, payments, and donor receipting and IRS reporting. Our guide to scholarship management software for SGOs compares the options. Edulist handles the family side free: families apply once with reusable profiles, your reviewers work from one inbox, and donors can pledge to you. Register your SGO to get started.