After the Anschluss with National Socialist Germany the Vienna Schools Council was turned into one of the instruments of racial hatred.

Jewish teachers and pupils were relegated from state secondary schools as early as spring 1938. When the Schools Council was incorporated into the Reichsstatthalterei, the office of the Reich governor of Vienna, and moved to another building in 1940, Palais Epstein became the seat of the construction department of the Reichsstatthalterei.