Public Money for Private Schools: School Vouchers, ESAs and Tax Credits

By Julianne Nava

School choice advocates who want to allow students to use public money to attend private school recently had a major win with a little-known school choice policy in Arizona. There, Republican Governor Doug Ducey signed into law a bill allowing any of the states’ students access to education savings accounts (ESAs).

Those outside Arizona (and Nevada, the only other state where all students are eligible for this type of program) might not know what an ESA is. In thinking of policies that use taxpayer money to subsidize private education, they might think only of school vouchers. But while vouchers are the “original,” a number of different policies aim to accomplish that goal.

What are these policies? How do they differ? Here is some background information on a few key types of private school choice.

Vouchers

Traditional school voucher programs allow students to choose private schools at public expense, with the government directly giving funds to those private schools. In most places, private schools accepting voucher recipients must meet certain standards set by the government. Typically, voucher recipients must meet eligibility requirements, often around family income, disability status and/or the performance of their assigned public school. Advocates believe that in allowing parents to choose whatever school they’d like for their children, they will choose high-performing options, and low-performing schools will be forced to close due to low enrollment or improve. Critics believe that private schools are not as accountable to state and local education achievement standards as public schools, and they argue that these programs can violate the separation of church and state. They also note that public schools are not able to reduce their fixed costs (such as facilities costs) in proportion to students leaving, which means voucher programs result in less money going to the classroom for students remaining in public schools. In addition, they are concerned that voucher recipients with disabilities must often give up some of their rights when agreeing to attend a private school and that private school admission practices can result in discrimination based on a number of factors, including gender, religion, sexual orientation, economic status, academic achievement and more. (Learn more in this American Federation of Teachers one-pager.)

As of November 2016, 14 states plus the District of Columbia have traditional school voucher program, according to the National Conference of State Legislatures. Voucher programs have been tested in courts many times. Some efforts to establish these programs have been found unconstitutional while others have been upheld. For a variety of reasons, states now often explore other private school choice policy options, including education savings accounts and tax credits.

Interested in learning more? Check out a January 2017 feature from Education Week or the National Conference of State Legislatures’ school vouchers webpage.

Education Savings Accounts

With Education Savings Accounts (ESAs), states put funds for a child’s education into special savings accounts that parents manage for education expenses, in most cases in lieu of a public school education. These funds, which can represent all or some of the money that the state would have spent to educate a child in the public schools, can be used qualifying expenses that can include private school tuition, fees, and textbooks; tutoring and test prep; homeschooling curriculum and materials; special instruction and therapeutic services; online courses; transportation; and college savings plans. ESAs remove the “school” requirement from traditional school choice, which advocates believe allows for truly customizable educational experiences. Critics note that ESAs use taxpayer funds to subsidize private choices in the same way that vouchers do and cite many of the same concerns with these programs, though with ESAs the state does not give money to directly to religious (or other) institutions.

ESAs are run at the state level and currently exist in five places: Arizona, Florida, Mississippi, Tennessee and Nevada. In most places, eligibility is limited to students who meet certain criteria, often related to disability status or family income level. In Nevada and Arizona, all public school students are eligible.

Interested in learning more? Check out our recent webinar with representatives of the Arizona School Boards Association. Also see resources from the National Education Association (which opposes ESAs) and the Foundation for Excellence in Education (which supports ESAs).

Scholarship Tax Credits

Scholarship Tax Credits, also known as Charitable Tax Credits, allow individuals and businesses to take tax credits for donating money to private, non-profit organizations that provide private school scholarships or vouchers. Students are allowed to choose from a list of approved private schools (and in some cases, public schools outside of the student’s district), and states do not have to appropriate per-pupil education funding for recipients. According to the National Conference of State Legislatures, as of January 2017, 17 states have these programs. Some limit eligibility to students meeting specific criteria, such as income level or previous public school attendance; in others, all students are eligible.

Advocates believe that, when well-designed, these programs save money because the annual tuition at a private school is typically less than the per-pupil cost at public schools (with, of course, many exceptions). However, measuring the fiscal impact of these programs is complex because the state does not directly fund the program—it is forgoing tax revenue it would otherwise have collected. In many places, to ensure the program does not add cost to the state budget, states have imposed a cap of the total amount of tax credits that can be awarded through the program. These caps must be carefully set to ensure they are not too high—if the cap is too high, and there are not enough participants, the state could lose money.

In addition to fiscal concerns about these programs, critics note many of the same issues as with vouchers, including that private schools are not as accountable to state and local education achievement standards as public schools; violation of the separation of church and state; and concerns that public schools are not able to reduce their fixed costs in proportion to students leaving for private schools, which means less money goes to the classroom for students remaining in the public schools.  

Interested in learning more? Check out the National Conference of State Legislatures’ scholarship tax credit webpage.

Tuition Tax Credits

Tuition tax credits provide families with an income tax credit for private (often including religious) school expenses. Some states offer a tax deduction (which lowers taxable income) instead of a tax credit (which lowers the amount of taxes owed). These tax breaks are intended to make private school more affordable and reduce the burden of families whose tax dollars support public schools despite the fact they are not using them. Some states allow any family with a child enrolled in a private school to take the credit or deduction, while others limit eligibility.  Many of the same concerns exist as with scholarship tax credits and vouchers. One additional fiscal concern—particularly when eligibility for participation is not limited—is that these benefits can be used mainly by families whose children are already in private school, which results in net revenue losses for the state. In addition, critics note that personal tax credits or deductions may be less attractive to low-income families, who typically pay fewer taxes. According to EdChoice.org, eight states offer either tax credits, deductions or both.

Interested in learning more? Check out resources from the National Education Association (which opposes these policies) and EdChoice.org (which supports them).

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graduation cap on U.S. money

While vouchers are the “original,” a number of different school choice policies allow students to use public money to attend private school.