"There is no room in our schools for discrimination of any kind, including discrimination against transgender students on the basis of their sex," said Attorney General Loretta E Lynch, after she issued the guidelines along with the Education Secretary John B King.
This guidance gives administrators, teachers and parents the tools they need to protect transgender students from peer harassment and to identify and address unjust school policies, she said
"Educators want to do the right thing for students, and many have reached out to us for guidance on how to follow the law. We must ensure that our young people know that whoever they are or wherever they come from, they have the opportunity to get a great education in an environment free from discrimination, harassment and violence," King said.
"Every child deserves to attend school in a safe, supportive environment that allows them to thrive and grow. And we know that teachers and administrators care deeply about all of their students and want them to succeed in school and life," said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Justice Department's Civil Rights Division.
In an election year, such a direction immediately took a political overtone with Republican-ruled state government slamming the Obama Administration on this.
The move comes in the wake of the controversy surrounding the so-called 'bathroom law' in North Carolina. Because of the differences, the state of North Carolina and the federal government sued each other last week.
The Texas Lieutenant Governor Dan Patrick called the letter as a blackmail.
"This is not an enforcement action. This does not add any additional requirements to any school district or state under the applicable law," he said.
Presumptive Republican presidential nominee Donald Trump was seen reluctant to criticise the Obama Administration on this.
He said the transgender issue should be left to states.
"I believe it should be states' rights and I think the states should make the decision, they're more capable of making the decision," Trump told ABC News.
However, the move was welcomed by several lawmakers. "LGBT students-like any other students-should never feel like they don't belong," said Senator Al Franken.
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