Advocates including the Bush administration had urged the justices to declare such a refusal unconstitutional religious discrimination.
It set no deadline for the new law but retained the right to revisit the issue if the unconstitutional discrimination did not end.
The White House had complained that this amounted to unconstitutional discrimination against a single state.
But that was not enough to prove unconstitutional discrimination against the individual defendant in this case, the majority ruled today.
The student sued and won a ruling from the federal appeals court in San Francisco that the state policy amounted to unconstitutional discrimination against religion.
Further, as the Congress has now recognized, it amounts to an unconstitutional discrimination against a single state.
Abortion rights advocates challenged the arrangement as unconstitutional discrimination against low-income families.
In a clear setback to the industry, a solid majority rejected the argument that the program amounted to unconstitutional discrimination against interstate commerce.
"Being a victim of unconstitutional discrimination entitles one to various forms of relief, sometimes including damages," the judge wrote.
But Justice Powell's majority opinion held that the statistics did not prove unconstitutional racial discrimination against any individual defendant.