What are K-12 Education Savings Accounts?

  • Introduction

    Ivan was a fourth grader enrolled in his neighborhood public school and was struggling with learning how to read. On top of his academic challenges, Ivan was bullied at school. His mother, Jeanet Carrasco, reached out to the school staff for a meeting to help her son with these issues, but that meeting never happened. Feeling frustrated, Jeanet wanted to help her son, but didn’t know how.

    A family member told Jeanet about the Arizona “Empowerment Scholarship Account,” an education savings account (ESA). State funded K-12 ESAs provide education funds for parents to customize the education of their child by purchasing one or more educational services, such as tutoring, online classes, private school tuition, and more. Jeanet enrolled Ivan in the ESA program and then used the funds to pay for Ivan to attend a private school, St. John the Evangelist. When Ivan entered his new school, he was a fourth-grade student reading at a second-grade level. After two years at the private school, Ivan was reading on grade level, and after three years, he was reading above grade level.Click 1

    Sarah Raybon is another Arizona mother of two who uses the Empowerment Scholarship Account to educate her children at home. Both boys have Individualized Education Programs (IEPs) for learning delays. If they were enrolled in a public school, because of school closures, their education would have been significantly impacted by the COVID-19 pandemic. Yet, the ESA allows for continuity in the boys’ education. She shared how wonderful it has been to know that pandemic or not, her two boys can continue learning at home and continue their educational therapies because the ESA pays for private therapists.2

    Oklahoma is implementing an innovative program to help families manage school closures due to the pandemic. In August, Governor Kevin Stitt announced the launch of the “Bridge the Gap Digital Wallet” program, which provides $1,500 stipends to low-income families to purchase curriculum, tutoring services, and/or technology.3The Digital Wallet is funded by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Oklahoma ESA was implemented quickly and designed to provide focused, targeted educational services to families to meet immediate needs.

    Because of the COVID-19 pandemic, parents are facing uncertainty in how to manage remote learning, school closures, childcare, and work. Schools are facing uncertainty in how to balance the benefits of in-person learning with health and safety concerns of their students and staff. ESAs are a promising approach to help manage both. As new models of educating students emerge (e.g., learning pods, micro-schools, and private tutors), ESAs can reduce the financial burden on parents, public schools, and taxpayers.

    The Current Landscape

    Not to be confused with Coverdell Education Savings Accounts, Arizona created the first publicly funded K-12 ESA program in 2011. Four additional states also have active ESA programs: Florida, Mississippi, North Carolina, and Tennessee.

    Table 1 provides a description of the elements of each program. A more detailed description of the general elements of ESA programs can be found in the Appendix.

    Table 1. Education Savings Accounts: Key Elements of State Programs

    (as of November, 2020)

    • ARIZONA: EMPOWERMENT SCHOLARSHIP ACCOUNT
    • ELIGIBILITY REQUIREMENTS
      Eligible students must have attended a public school 100 days of the prior year and meet one of the following criteria:

      1) Attended a school or district that received a D or F under the state school grading system.

      2) Previously received a scholarship under Lexie’s Law for Disabled and Displaced Students Tax Credit Scholarship Program.

      3) Either currently or previously in the state foster care system.

      4) A sibling of a current ESA recipient.

      5) Currently living on a Native American reservation.

      6) The state is phasing in near universal eligibility based on grade level. By 2021, all public-school students will be eligible to participate.

      Special consideration: Children of active-duty military personnel, who have a parent that was killed in the line of duty or who are pre-school-aged children with disabilities are exempt from the prior public school attendance requirement.
    • FUNDING
      Participants eligible to receive 90% of what their district would have received in state funds.

      Participants from households below 250% of the federal poverty level are eligible to receive 100% of what their district would have received in state funds.
    • USE OF FUNDS
      Nongovernmental school tuition, including postsecondary, therapy, tutoring, extracurricular services, textbooks, and curriculum.

      Unused account funds eligible to convert to college savings account.
    • ADMINISTRATIVE REQUIREMENTS
      Department must conduct or contract for annual audits and random quarterly audits.

      Quarterly deposit to participating accounts.
    • ASSESSMENT REQUIREMENTS
      N/A
    • FLORIDA: GARDINER SCHOLARSHIP
    • ELIGIBILITY REQUIREMENTS
      Either:

      1) Identified as having a disability.

      2) Students who are 3 or 4 years of age.

      3) Eligible for other Florida scholarships.
    • FUNDING
      Participants are entitled to the maximum state per-pupil award amount plus the program or district funds the student would have received in public school.
    • USE OF FUNDS
      Nongovernmental school tuition, including postsecondary, therapy, tutoring, extracurricular services, textbooks, and curriculum.

      Unused account funds eligible to convert to college savings account.
    • ADMINISTRATIVE REQUIREMENTS
      Auditor General must perform annual audit of all scholarship-funding organizations.

      Quarterly reimbursement.
    • ASSESSMENT REQUIREMENTS
      Students are required to take state or national standardized tests.
    • MISSISSIPPI: EQUAL OPPORTUNITY FOR STUDENTS WITH SPECIAL NEEDS
    • ELIGIBILITY REQUIREMENTS
      Any student who has had an Individualized Education Program within 18 months of applying for the program.
    • FUNDING
      Participants received $6,500 for 2015-2016 school year. Funding for subsequent years will increase or decrease by the same proportion as funding provided to public schools.
    • USE OF FUNDS
      Nongovernmental school tuition, including postsecondary, therapy, tutoring, extracurricular services, textbooks, and curriculum.

      Transportation fees allowed.
    • ADMINISTRATIVE REQUIREMENTS
      Department must conduct random audits. Services may be contracted.

      Quarterly reimbursement.
    • ASSESSMENT REQUIREMENTS
      N/A
    • NORTH CAROLINA: EDUCATION SAVINGS ACCOUNT PROGRAM
    • ELIGIBILITY REQUIREMENTS
      A child with a disability who is identified with autism, developmental delay, hearing impairment, moderate or severe intellectual disability, multiple disabilities, orthopedic impairment, or visual impairment.

      The child must be between the ages of 5 and 22 (from kindergarten through the receipt of a high school diploma or its equivalent).
    • FUNDING
      Up to $9,000 per account.
    • USE OF FUNDS
      Tuition and/or fees for an eligible school, textbooks, curriculum, tutoring, assessment fees, account management fees, extracurricular programs, individual classes, educational therapies, educational technology, and transportation.
    • ADMINISTRATIVE REQUIREMENTS
      Each eligible school is subject to examination by the State Education Assistance Authority and any other audit process designated by the Authority.
    • ASSESSMENT REQUIREMENTS
      Students are required to take national standardized tests.
    • TENNESSEE: INDIVIDUALIZED EDUCATION ACCOUNT PROGRAM
    • ELIGIBILITY REQUIREMENTS
      Students must either be entering kindergarten or have attended a public school in the previous two semesters and meet the following criteria:

      1) Identified as having a disability.

      2) Has an Individualized Education Program (IEP).
    • FUNDING
      Maximum award amount is equal to per pupil state and local funds received through the Basic Education Program and special needs funding for IEP.
    • USE OF FUNDS
      Nongovernmental school tuition, including postsecondary, therapy, tutoring, extracurricular services, textbooks, and curriculum.

      Unused account funds eligible to convert to college savings account.

      Transportation fees included.
    • ADMINISTRATIVE REQUIREMENTS
      Department must conduct random audits. Services may be contracted.

      Quarterly deposits to account.
    • ASSESSMENT REQUIREMENTS
      Students are required to take state or national standardized tests.
    • SOURCES
      Table is adapted from resources available from the Education Commission of the States and the National Conference of State Legislatures. Education Savings Accounts: Key Provisions and State Variations, https://www.ecs.org/education-savings-accounts-key-provisions-and-state-variations/ and Interactive Guide to School Choice Laws, https://www.ncsl.org/research/education/interactive-guide-to-school-choice.aspx. Additional sources include the North Carolina State Education Assistance Authority (NCSEAA). Rules Governing the North Carolina Personal Education Savings Account Program, http://www.ncseaa.edu/pdf/ESA_Rules.pdf. Jonathan Butcher, “A Primer on Education Savings Accounts: Giving Every Child the Chance to Succeed,” The Heritage Foundation, September 15, 2017, https://www.heritage.org/sites/default/files/2017-09/BG3245.pdf.

    Since Arizona was the first state ESA program, it has undergone the most rigorous study by researchers and policymakers. The Arizona Empowerment Scholarship Account has been evaluated to investigate participation, parent satisfaction, use of funds, and fiscal outcomes. Over the last 10 years, the program has seen an increase in participation, high levels of parent satisfaction, and positive fiscal outcomes for parents, public schools, and taxpayers.4

    Conclusion

    Educating students during the COVID-19 pandemic has highlighted that there is no “one-size-fits-all” approach to education. Parents and schools are dealing with a high degree of uncertainty as they navigate this school year. No one can predict how long the pandemic will last. Furthermore, no one can predict if schools will return to “business as usual” or if the current changes will remain in some form. As educators, parents, and policymakers reimagine Colorado’s education models, ESAs may help provide parents with the flexibility to customize education for their children.

    Depending on how the ESA program is structured, it can provide financial benefits to school districts and taxpayers.5 In this way, ESAs may ease the effects of cuts in district and state budgets due to the COVID-19 pandemic. As Colorado schools and families manage education in the current landscape, policymakers should look to the examples set by states like Arizona and Oklahoma.

    Appendix

    The Elements of an ESA Program

    ESA programs are designed and implemented by states. These programs allow parents to receive public funds in government-authorized savings accounts with multiple, restricted uses. The funds can be used to pay for pre-approved educational expenses, such as private school tuition, tutoring, textbooks, curricula, online learning, individual classes, therapists, and Advanced Placement courses. In some ESA programs, parents can roll over unused funds from year to year and even into a college savings account.6

    While all ESA programs are different, there are some common design elements across programs:7

    • Student eligibility. States may allow universal eligibility or eligibility based on disability status, family income, “unique” situations, lotteries, or sibling participation.
    • Funding source. States may fund their ESA program with the state education funding formula, a tax-credit mechanism, or a line-item appropriation in the budget.
    • ESA amount. The amount deposited in an ESA may vary by state and by student. Typical amounts include the following:
      • – A percentage of the amount of state and local funding per student in the state
      • – An amount based on family income
      • – A flat amount
    • Eligible use of funds. Common examples of eligible use of funds include the following:
      • – Tuition, fees, and books at eligible K-12 private schools and colleges;
      • – Specialized services, such as occupational, behavioral, physical, and speech-language therapies for students with disabilities;
      • – Savings for college or future K-12 expenses;
      • – Private tutoring from a state-certified teacher or a tutor with state, regional, or national accreditation;
      • – Instructional materials and curricula (including digital devices and assistive technology);
      • – Online courses or programs;
      • – Exam fees (norm-referenced assessments, Advanced Placement, SAT/ACT, industry certification, etc.);
      • – Contract services from a public school or district, including individual classes;
      • – Fees for management of the account by financial firms.
    • Administrative body. Each state determines an entity to administer the ESA program. Possible entities to administer the program include state departments of education, other state agencies, or third-party vendors.
    • Administrative fee. ESA programs set aside funds to ensure proper program implementation. Most often, the fee represents a total of the ESA funds (e.g., 3%-6%). States may also set aside a specific amount.
    • Start-up costs. The entity administering the program may require funds to cover the cost of implementing ESAs before the administrative fees begin to come in.

    Endnotes

    1 Jonathan Butcher, “A Primer on Education Savings Accounts: Giving Every Child the Chance to Succeed,” The Heritage Foundation, September 15, 2017, https://www.heritage.org/sites/default/files/2017-09/BG3245.pdf.

    2 Sarah Raybon, participant in the Arizona Empowerment Scholarship Account, electronic mail to the author, September 25, 2020.

    3 Evie Blad, “Governors Direct Federal COVID-19 Aid to Private School Scholarships,” Education Week, July 20, 2020, https://blogs.edweek.org/edweek/campaign-k-12/2020/07/private-schools-covid-relief-aid-governors.html. Tres Savage, “Stitt designates CARES Act education dollars, including private school scholarships,” NONDOC, July 17, 2020, https://nondoc.com/2020/07/17/stitt-designates-education-dollars-including-private-school-scholarships/. See also https://www.everykidcountsok.org/digital-wallet.

    4 Matt Beienburg, “The Public School Benefits of Education Savings Accounts: The Impact of ESAs in Arizona,” Goldwater Institute, August 13, 2019, https://goldwaterinstitute.org/wp-content/uploads/2019/08/Public-School-Benefits-of-ESAs_web.pdf. Jonathan Butcher and Lindsay M. Burke, “The Education Debit Card II: What Arizona Parents Purchase with Education Savings Accounts,” Friedman Foundation, February 2016, https://www.edchoice.org/research/the-education-debit-card-ii/.

    5 Ibid.

    6 EdChoice: Education Savings Accounts Policy Handout, available at https://www.edchoice.org/wp-content/uploads/2015/02/2016-8-EdChoice-ESAs1.pdf.

    7 Foundation for Excellence in Education. ESAs: The Next Generation of School Choice, October 2015, https://www.excelined.org/wp-content/uploads/ESAs-the-NextGen-of-School-Choice-FINAL.pdf.