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Education Next
On Designing
K-12 Education Savings Accounts
By Jason Bedrick and Lindsey M. Burke
01/26/2015
As we celebrate National School Choice Week, education-reform advocates
would be wise to reflect on purpose of school choice as articulated by
Milton Friedman, the father of the modern school choice movement.
Friedman first proposed the concept of school vouchers in 1955, arguing
that by introducing consumer choice into education, vouchers could help
create a competitive marketplace. “Vouchers are not an end in
themselves,” Friedman wrote in 1995; “they are a means to make a
transition from a government to a market system.”
Friedman was likely even more innovative than education-reform
advocates realize, because he saw that a real education market would
create its own path, pushed along by market forces. Noting in 2003 that
“there’s no reason to expect that the future market will have the shape
or form that our present market has,” Friedman wondered: “How do we
know how education will develop? Why is it sensible for a child to get
all his or her schooling in one brick building?” Instead, Friedman
proposed granting students “partial vouchers”: “Why not let them spend
part of a voucher for math in one place and English or science
somewhere else?…Why can’t a student take some lessons at home,
especially now, with the availability of the Internet?”
Education savings accounts operate like the “partial voucher” that
Friedman envisioned more than a decade ago, allowing families to seek
out the best educational opportunities for their students—whether those
be in a private or parochial school or a mix of non-traditional
education options. Two states have already adopted ESAs, and numerous
other state legislatures have considered them. ESAs constitute a
critical refinement of Friedman’s voucher idea, moving from school
choice to educational choice. The challenge for state policymakers is
to overcome implementation issues, avoid constitutional roadblocks, and
resist harmful regulations masquerading as “accountability.”
EXPANDING THE EDUCATION MARKETPLACE
As the first ESA program to be implemented in the United States,
Arizona’s Empowerment Scholarship Accounts offer a useful example of
how the accounts can work in practice. Under the Arizona law, passed in
2011, eligible families that opt not to enroll their children in a
public school full time can access 90% of what the state of Arizona
would have spent on their children if they had enrolled in the
public-school system. The Arizona Department of Education deposits
funds directly into a privately managed bank account, and parents can
access the funds through a restricted-use debit card. The parents can
then spend the money on any qualifying education-related service or
provider they choose.
Parents can also save unused funds from year to year and roll the funds
into a college savings account. These two features of ESAs—the ability
of parents to completely customize their child’s education and save for
future educational expenses—make them distinct from and improvements
upon traditional school vouchers. ESAs empower parents with the ability
to maximize the value their children get from their education services.
And because they control how and when the money is spent, parents also
have a greater incentive to control costs. In practice, therefore, ESAs
work very much like Friedman’s “partial vouchers,” seeking to harness
the way people naturally make spending decisions to create a
competitive education marketplace.
It appears that such a market may be beginning to take shape in
Arizona. Early analyses of the Arizona program indicate that parents
are using the money to purchase a wide variety of educational services
and products. In 2013, the Friedman Foundation for Educational Choice
examined how families are using their ESA funds, using restricted data
from the Arizona Department of Education. The analysis found that
families chose a wide variety of private schools for their children,
including Montessori schools, parochial schools (Protestant, Catholic,
and Jewish), single-sex schools, Waldorf academies, and schools that
cater to children with autism. Sixty-six percent of families used their
ESAs solely to pay tuition at a chosen private school of choice, in a
manner similar to a school voucher.
Notably, 34% of participants used their ESAs to purchase multiple
educational products and services, including curricula, textbooks,
private tutoring, therapy, and online educational options. Some
families used these products and services to supplement their
children’s private-school education, while others used them to
completely tailor their children’s education outside of any traditional
school, public or private. In addition, 26% of ESA funds were unspent
through the first quarter of 2013, suggesting that families were saving
a portion of their funds in anticipation of future education-related
expenses.
Parents are overwhelmingly satisfied with the enhanced educational
choice that ESAs provide. In 2013, the Friedman Foundation surveyed
Arizona families with ESAs to measure the levels of parental
satisfaction. (All of the survey respondents had children with special
needs.) The respondents unanimously reported being more satisfied with
the education they purchased for their child with the ESA funds than
with their child’s prior public school: 71% of respondents reported
being “very satisfied” with their ESAs, 19% were “satisfied,” and 10%
reported being “somewhat satisfied.” Not a single parent reported being
dissatisfied, or even having “neutral” feelings about the program.
ADMINISTRATIVE CHALLENGES
As promising as these ESA programs seem to be, they present novel
implementation challenges. After Governor Jan Brewer signed the
Empowerment Scholarship Accounts into law in 2011, the Arizona
Department of Education had to answer difficult questions about how to
run the program: How would it determine which products and services
would qualify for ESA funds? Was the department responsible for
ensuring the quality of qualifying products and services? How would it
prevent parents from using the ESA debit cards on non-qualifying
purchases?
Navigating these issues was a complex and difficult process. Over time,
the department worked through these issues and used the experience to
develop an impressive handbook detailing how the ESA works, the history
of the program, student eligibility, parents’ rights and
responsibilities, education providers’ responsibilities, qualifying
purchases, and reporting requirements, among other details. The
handbook will be of particular interest to policymakers considering
ESAs in other states.
However, there are some areas of implementation where the department is
in need of improvement. Enrollment in Arizona’s ESA program nearly
doubled from 692 students in 2013-14 to about 1,300 in 2014-15, but
nearly half of the 2,300 applicants were rejected, indicating either
that the state needs to re-evaluate its eligibility criteria or that
the department was inappropriately rejecting qualified applicants. The
department blamed “uninformed” families, but a prominent nonprofit that
helped families apply say that’s “insulting” and “misleading.”
The Hispanic Council for Reform and Educational Options (HCREO) claimed
that, even after they had screened applicants to ensure eligibility,
the department rejected three-quarters of their roughly 600 applicants.
HCREO also faulted the department for lacking Spanish-language
translators, failing to return phone calls to parents, and scheduling
ESA workshops during business hours when most low-income parents had to
be at work.
HCREO recommended that the department make three changes to improve the
application process: Create an online application, employ flex hours so
that staff can be available outside of regular business hours, and
ensure that staff members return phone calls. To its credit, the
department’s website now allows applications via email. (Previously,
applications had to be mailed, hand-delivered, or faxed—but the
department’s fax machines were out of order during the final week of
the 2014-15 application period, which may have prevented some families
from applying in time.) Whether the department will implement the other
suggestions remains to be seen.
Crucially, these implementation challenges occurred under an
administration that was vocally supportive of educational choice and
dedicated to providing good customer service. When the political winds
shift, the department’s administrators may be less supportive of or
even hostile to educational choice, as is the case in many state
education agencies around the country. Bureaucrats who view the ESAs
and other choice programs as inimical to their core mission may even
work to undermine the programs.
Florida was the second state to create an ESA program. Their ESA law,
called Personal Learning Scholarship Accounts, manages to avoid
subjecting the program to bureaucratic inertia or political fortune.
While publicly funded, the PLSAs are privately managed by the same
non-profit scholarship organizations that participate in the state’s
scholarship tax-credit program. The PLSA program was created in May
2014, and within six months of being signed into law, the state’s
largest scholarship organization, Step Up For Students, had already
approved ESA scholarships for more than 1,200 students.
It’s too soon to draw any firm conclusions, but there are several
reasons to believe that Florida’s model of privately managed ESAs holds
advantages over Arizona’s government-managed model. First, the
non-profit scholarship organizations are less likely to be captured by
opponents than is a government agency. The non-profits are dedicated to
the scholarships, and the idea of school choice is built into their
mission. Second, awarding scholarships is the primary mission of a
scholarship organization but only an ancillary function of a state
education agency—which means that not only will they be more dedicated
to the concept but they can generate and retain best practices more
easily. Third, scholarship organizations have the ability and
incentives to be more flexible in their operation than government
agencies, and therefore more responsive to the needs of families. The
Arizona education department did not offer workshops for parents
outside of regular business hours because employees were not paid for
those hours. Non-profits can more easily implement policies like
flextime.
CONSTITUTIONAL CHALLENGES
Before they can tackle any administrative challenges, policymakers in
some states must address a constitutional challenge to the taxpayer
funding of private education. While the United States Supreme Court has
ruled that publicly funded school vouchers are constitutional under the
First Amendment’s Establishment Clause, most state constitutions
contain a version of the so-called “Blaine Amendment,” which bars state
aid to parochial schools. In addition, most state constitutions also
contain an older “compelled support” clause, which forbids compelling
taxpayers to support religious institutions through public funding.
Arizona’s ESA law survived a Blaine Amendment challenge, despite the
fact that the state supreme court previously struck down a voucher law
on those grounds. The court distinguished the ESAs from vouchers
because the latter “set aside state money to allow students to attend
private schools” whereas under the ESA law, “the state deposits funds
into an account from which parents may draw to purchase a wide range of
services” and “none of the ESA funds are pre-ordained for a particular
destination.”
It is an open question, however, whether other state supreme courts
that have adopted more restrictive interpretations of their Blaine
Amendments will find that distinction compelling. Currently, the
Florida Education Association is challenging the constitutionality of
the state’s scholarship tax credit law under the state constitution’s
Blaine Amendment and other provisions, which has the potential to
impact the ESA law.
Policymakers could avoid the constitutional uncertainty altogether by
funding the ESAs privately, through tax credits, rather than through
government allocation. This approach would have the added benefit of
avoiding the compulsion inherent in all taxpayer-funded programs. As
Milton and Rose Friedman wrote in Free to Choose, “Voluntary gifts
aside, you can spend someone else’s money only by taking it away as
government does. The use of force is…a bad means that tends to corrupt
the good ends.” Conflicts in public education over issues such as
political agendas, teaching evolution, and sex education spark social
conflict in part because citizens are forced to pay for the
promulgation of ideas with which they disagree. Shifting to a model of
education funding that allows taxpayers to choose what forms of
education they will financially support with their own money would
likely reduce social conflict over these programs.
Two existing laws already embody some elements of the tax-credit-funded
ESA model, and they can help point a way forward. As noted, Florida’s
publicly funded ESA program is privately administered by the same
non-profit scholarship organizations whose donors receive
dollar-for-dollar tax credits for their contributions to scholarships.
In addition, New Hampshire’s scholarship tax-credit law includes an
ESA-style provision that allows homeschoolers to spend scholarship
funds on a variety of educational products and services similar to
those permitted by the Arizona and Florida ESA laws.
REDUCING REGULATORY THREATS
In addition to placing them on firmer constitutional ground, funding
ESAs through tax credits could also reduce the threat of harmful
regulations.
In a generally well-meaning effort to impose “accountability,” some
policymakers have attempted to regulate school choice programs as they
regulate district schools, including by mandating state tests. However,
rules designed to regulate a monopoly like a public-school system are
not appropriate for a market. Beyond basic health and safety
regulations, top-down accountability measures are generally unnecessary
at best and harmful at worst. Centralized standards, especially in the
form of state testing mandates, induce conformity that can undermine
the innovation and diversity that give educational choice its value.
Whereas government-run schools are primarily accountable to elected
school boards and unelected state education bureaucrats, private
education providers are accountable directly to parents, and the same
market forces that place competitive pressure on other kinds of
businesses operate on these education providers as well.
Research indicates that privately funded school-choice programs are
less likely to be overregulated than publicly funded programs. A 2010
study by Andrew J. Coulson of the Cato Institute found that direct
government expenditures, “but not tax credits, impose a substantial and
statistically significant additional regulatory burden on participating
private schools.” In May 2014, a study by Andrew Catt of the Friedman
Foundation found that scholarship tax-credit laws generally imposed
very few additional regulations on schools when first enacted and over
time.
At least two reasons explain why scholarship tax-credit programs are
less likely to be over-regulated. First, as with tax deductions and tax
exemptions, policymakers are less likely to attach strings to tax
credits than to public expenditures, since the money never actually
comes into the state treasury. Second, scholarship tax-credit laws
enable supporters of school choice to organize so that they can more
effectively fight harmful regulations: Scholarship organizations can
help both scholarship recipients and the donors mobilize against
potentially harmful legislation. Educational-choice programs are
therefore more likely to be politically sustainable in the long run if
they are privately managed and privately funded.
VISIONARY BUT PRACTICAL
Most school-choice programs offer significant but not revolutionary
changes to the traditional educational model. But true educational
choice, and the educational market it could help foster, promise to
radically improve education for many children. As Milton Friedman
observed, “not all ‘schooling’ is ‘education,’ and not all ‘education’
is ‘schooling.’” Charter schools and voucher programs still conflate
the two, but education savings accounts embody a more expansive
understanding of education.
ESAs offer several key advantages over traditional school-choice
programs. Because families can spend ESA funds at multiple providers
and can save unspent funds for later, ESAs incentivize families to
economize and maximize the value of each dollar spent, in a manner
similar to the way they would spend their own money. ESAs also create
incentives for education providers to unbundle services and products to
better meet students’ individual learning needs.
For our nation’s education system to incorporate this key insight,
states must rethink at the most basic level how to fund education—a
process that will not be without challenges. Like other
educational-choice policies, ESAs face administrative challenges,
constitutional obstacles, and regulatory threats. And while not
conclusive, the relative experiences of Arizona and Florida may suggest
that private administration of an ESA program will be more efficient
and effective than government management. While government-funded
voucher laws have had a mixed record in state courts,
educational-choice laws that are privately funded through tax credits
have a perfect constitutional record thus far. And empirical research
suggests that educational-choice laws are less likely to be
over-regulated when they are privately funded.
As Friedman said of school choice decades ago, this proposal is
visionary but not impractical. Two states have already adopted ESA laws
and more are likely to follow in the coming years. These laws hold
great potential to expand educational opportunity and remake the entire
education system in ways that better and more efficiently meet the
needs of children.
Read this and other articles at Education Next
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