Senate Bill 2 Texas: The Law Behind Education Freedom Accounts

What SB 2 Created

Senate Bill 2, passed by the 89th Texas Legislature and signed into law in May 2025, established the Texas Education Freedom Accounts program — a state-funded Education Savings Account system codified in Texas Education Code Chapter 29, Subchapter J (Sections 29.351 through 29.371).

The bill did three foundational things:

1. Created the TEFA program structure — eligibility rules, award tiers, priority lottery, and spending framework
2. Appropriated $1 billion from the General Revenue Fund for the inaugural 2026–2027 school year
3. Assigned administration to the Texas Comptroller of Public Accounts, with authority to select a certified educational assistance organization (Odyssey won the contract)

SB 2 took effect September 1, 2025. The Comptroller adopted administrative rules under 34 TAC Chapter 16 by December 2025, and the first parent application window opened February 4, 2026. Its original March 17 deadline was extended through March 31.

Key Statutory Provisions

Award structure. Private school students receive 85% of statewide average per-pupil funding ($10,474 for 2026–2027). Students with active IEPs at accredited private schools receive up to $30,000. Homeschool students receive a flat $2,000 per year.

Priority lottery. When applications exceed funding, a four-tier system governs: Tier 1 (disability, income ≤500% FPL), Tier 2 (low-income, ≤200% FPL), Tier 3 (middle-income, >200% and ≤500% FPL), Tier 4 (upper-income, >500% FPL, capped at 20% of total funds).

Direct-payment model. The statute mandates spending through the CEAO's marketplace — no direct parent reimbursements, no cash withdrawals.

Audit authority. The Comptroller audits at least 10% of active accounts annually, with authority to freeze accounts, revoke funding, and refer fraud for criminal prosecution.

HB 2674: The Homeschool Protection Bill

SB 2 didn't pass alone. House Bill 2674, the Homeschool Freedom Act, was companion legislation specifically addressing the homeschool community's concerns about state overreach.

HB 2674's core provision: it explicitly prohibits any state agency from using SB 2 as authority to regulate non-participating homeschools. Families who don't take TEFA money retain full Leeper v. Arlington ISD protections — no registration, no testing, no attendance reporting, no curriculum approval.

TEFA does not impose an annual assessment requirement on homeschool participants. Participating private schools must administer annual assessments to students in grades 3 through 12. Assessment results are confidential and may be shared only as needed to administer the program.

What the Administrative Rules Changed

The Comptroller's final rules, adopted in late 2025, resolved several ambiguities in the bill text that affected how the program operates in practice:

Income verification. Household income is measured strictly by Federal Adjusted Gross Income on the IRS Form 1040. The proposed rules were less specific; the final rules eliminated alternative documentation, which led to roughly 25,500 application disqualifications.

Homeschool disability cap. The final rules confirmed that homeschooled students with disabilities are capped at $2,000, not $30,000. The higher tier requires private school enrollment.

Reimbursement prohibition. Early drafts suggested parents might be able to pay out of pocket and get reimbursed. The final rules established a direct-payment-only model through the Odyssey marketplace.

Pre-K funding. Rules clarified that Pre-K and Kindergarten students enrolled in approved non-public programs receive the full $10,474 private school award, not the $2,000 homeschool cap.

Pending Litigation

Multiple lawsuits filed in spring 2026 challenge aspects of the program's administration. In Cherkaoui v. Comptroller and Islamic Education Union v. Comptroller, plaintiffs argue that administrative delays prevented several Islamic private schools from obtaining approved-vendor status before the application deadline, alleging First Amendment and Equal Protection violations.

These cases could modify vendor approval procedures or require supplemental application cycles for affected schools.

What the 90th Legislature May Change

The 90th Texas Legislative Session convenes in January 2027. Lawmakers are expected to consider proposals to expand the biennial appropriation beyond $1 billion, adjust the $2,000 homeschool award limit, and potentially modify public school funding formulas affected by student exits.

A separate federal development may also matter: the Federal Education Freedom Tax Credit, created under 2025 reconciliation legislation, takes effect in 2027 with a $24 billion national cap. If Texas opts into the federal framework, families might be able to combine state TEFA accounts with federally supported tax-credit scholarships.

For a complete breakdown of how SB 2 affects your family's specific situation, the TEFA Parent Guide translates the statute into step-by-step application, spending, and compliance instructions.

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