
POLICY INSIGHT
Education Savings Accounts
Introduction
Education Savings Accounts (ESAs) are a unique form of private school choice that differ from traditional vouchers and tax-credit scholarships. Unlike other programs, ESAs provide participating students with individual accounts funded by the state, typically based on per-pupil funding formulas. Parents or guardians can then use these funds to pay for a wide range of approved educational expenses, including private school tuition, tutoring, online courses, transportation, and certain types of therapy.
Funding for ESAs is generally calculated by dividing a school system’s operational budget by its total student enrollment, though states vary in how they determine this per-pupil amount. ESA programs offer families flexible options, allowing students to attend private schools, homeschool, or pursue hybrid public-private education models.
Originally designed to support students with disabilities, ESA eligibility has expanded in states like Arizona to include children from failing schools, military families, and those living on American Indian reservations. By enabling parents to redirect public education funds into personalized savings accounts, ESAs empower families to customize their children’s learning experiences beyond traditional public school settings.
EdChoice explains more here (1 min).
WHY IT MATTERS
According to a recent statistic from the National Center for Education Statistics, the number of students ages 3-21 who received special education services under the Individuals with Disabilities Education Act has averaged roughly 14- 15% of all public school students since 2000. In 2022, there were 7.3 million public school students receiving services. Of those, one-third have specific learning disabilities. Having choices in educational services allows all children to receive a customized education experience that can meet their individual learning needs, thereby preparing them for the future.
Putting it in Context
HISTORY
The first ESA program originated in Arizona in 2011 after a lengthy battle. Arizona has a long history of expanding educational options beyond traditional public schools, including open enrollment policies and charter schools. In 2006, the state introduced two small pilot voucher programs aimed at students with disabilities and foster children. However, in 2009, the Arizona Supreme Court ruled these voucher programs unconstitutional because they involved direct state funding to private schools, including religious institutions. This violated the state constitution.
In response, the legislature passed Lexie’s Law, a corporate tax credit scholarship program allowing businesses to receive tax credits for donations to organizations that provide scholarships to children with disabilities. While this program helped fund private school scholarships, it faced funding limitations and did not fully meet demand.
To offer a more sustainable and flexible alternative, Arizona enacted the nation’s first ESA program in 2011. The program allocates public funds directly to eligible families in the form of accounts they can use for a variety of approved educational expenses, not just private school tuition. In 2014, the Arizona Supreme Court upheld the ESA program since it did not constitute a direct transfer of funds solely to religious schools.
Originally limited to students with disabilities, the ESA program has since expanded eligibility to include foster children, military families, students zoned to failing schools, and more. In 2022, Arizona became the first state to adopt a universal ESA program open to all K–12 students.
PROGRAM OPTIONS
Since Arizona’s first program, multiple options have sprung up for students and their families. School choice encompasses a variety of programs that give families more control over their children’s education, including public and private options. Among private school choice programs, ESAs are one of several key types, each with distinct features and funding mechanisms.
529 PLANS
Created as part of the Small Business Job Protection Act in 1996, 529 plans were originally meant to give parents a tax-advantaged way to save for college expenses. Parents could get federal income tax benefits as long as they used the money for certain qualified educational expenses—all at the postsecondary level.
Anyone can open a 529 plan with anyone else as a beneficiary. Adults can even use them to save for continuing educational expenses. But the most common use is for parents or other relatives to open a 529 account with a child as the beneficiary. This means the money is to be used for the child’s education, but the parent or other account custodian actually controls the funds. As long as the money is used for the beneficiary’s allowable educational expenses, it grows federal income tax-free.
While both 529 plans and ESAs offer tax-advantaged ways to save for education, ESAs differ by being state-funded accounts that provide families with public education dollars rather than privately raised. They can also be spent on a broader range of K-12 educational expenses, offering more immediate flexibility compared to the primarily college-focused, privately funded 529 plans.
COVERDELL EDUCATION SAVINGS ACCOUNTS
Coverdell Education Savings Accounts are set up by a bank to work like a 529 plan and are funded through personal funds, not state tax dollars. They used to be known as Education IRAs. This type of account offers a tax-advantaged way for parents to save money for a specific purpose—namely, their children’s education. Unlike 529 plans, parents can use Coverdell ESA funds to pay for certain K–12 educational expenses, as well as college expenses.
EDUCATION SAVINGS ACCOUNT PROGRAMS IN K-12
K–12 education savings accounts, usually referred to as ESAs, are taxpayer-funded spending accounts the government offers eligible student families. They can use the funds—often in the form of a debit card—to pay only for expenses that tailor a student’s education to their specific needs. The “savings” in the name of this program type comes from parents’ ability to save funds from quarter to quarter, or school year to school year, to use for future educational expenses, such as college tuition or more expensive learning therapies. The money follows a child to the school or provider they attend, not necessarily where they would attend based on their address.
Though ESAs and Coverdell ESAs share an acronym, they have different funding streams and purposes.
TAX-CREDITS
Tax-credit ESAs allow taxpayers to receive full or partial tax credits when they donate to nonprofit organizations that fund and manage parent-directed K-12 education savings accounts. Families may use those funds to pay for multiple education-related expenses, including private school tuition and fees, online learning programs, private tutoring, community college costs, higher education expenses and other approved customized learning services and materials, and roll over unused funds from year to year to save for future educational expenses. Some tax-credit ESAs, but not all, even allow students to use their funds to pay for a combination of public school courses and private services.
See if your state offers a tax-credit ESA program.
Tax-credit scholarships are used to incentivize businesses or individuals to donate money to a scholarship granting organization, which then gives money to students to use toward tuition at a private school. To qualify, students usually have to be from a low-income family, a failing school, or have other special needs. Some states offer another variation, such as individual tax-credits or deductions.
The Education Freedom Scholarships and Opportunity Act established a federal tax credit program that provides up to $5 billion annually to incentivize individuals and businesses to donate to scholarship granting organizations. Donors receive a dollar-for-dollar reduction in their federal income tax liability for contributions made, subject to caps based on income levels.
The program is voluntary, ensuring that families, taxpayers, organizations, and states can choose whether to participate. It empowers states to design scholarship programs that fit their needs, including setting eligibility criteria and defining qualified educational expenses, while explicitly preventing increased federal regulation of participating entities.
Funds would pay for K-12 education options such as private school tuition, private tutoring, Advanced Placement courses, online classes and educational technology, career and technical education or internships and apprenticeships, day care or after-school programs, instructional materials for home education, and special education services for students with unique learning needs. As with ESAs, the main concerns with EFS are that it will drain resources from public schools and, because only public schools need to adhere to the federal Individuals with Disabilities Education Act, students with special learning needs could be overlooked.
Investigate what your state offers.
VOUCHERS
School vouchers allow parents to use public funding allocated for their child toward tuition at a private school of their choice, including religiously affiliated private schools. While both ESAs and voucher programs redirect public education funds to families, ESAs generally offer broader flexibility by allowing funds to be spent on a wider range of educational expenses beyond private school tuition. Vouchers are typically restricted to tuition payments at approved private schools. Most programs typically start out targeted toward certain groups of students such as those with disabilities, those zoned to a failing school, or those from low-income families. School vouchers give parents the freedom to choose a private school for their children, using all or part of the public funding set aside for their children’s education.Under such a program, funds typically spent by a school district would be allocated to a participating family in the form of a voucher to pay partial or full tuition for their child’s private school, including both religious and non-religious options.
Check if your state offers a school voucher program.
How Education Savings Accounts Work
Each state has its own set of guidelines to determine which students are eligible for ESAs and how much funding students receive. Similarly, each jurisdiction has its own way of administering the program, including determining which services are eligible to be purchased with ESA funds and whether the state or a third-party company will administer the program. However, the programs generally operate in a similar manner.
Public schools are funded through a combination of local, state, and federal resources. The Department of Education contributes roughly 14% of the elementary and secondary education budget, with state and local governments funding the rest.
Funding levels vary by state. Find out if your state relied heavily on public funding for education.
FUNDING
The ESA funds are placed into an account for use by parents to pay for educational expenses such as tuition for a private school, supplies such as textbooks or technology expenses, private tutoring, or specialized educational or therapeutic services based on the needs of the student. These expenses are audited by the servicing entity (a contracted third party, as is the case in Florida, or the state, as is the case in Arizona) to ensure that the funds are being used properly. Most states allow unused funds to be rolled over for later educational expenses such as college tuition. To ensure that there is no double funding, students enrolled in an ESA program are not allowed to concurrently attend public school.
A primary concern among opponents of Education Savings Accounts (ESAs) is that since these funds come from taxpayers and can be used for private education, including religious schools. This may conflict with the principle of separation of church and state. However, in a 2020 Supreme Court decision, the Court ruled that states cannot exclude religious schools from participating in publicly funded school choice programs. This means that if a state provides public funding for private education, it must allow religious schools to receive funds on equal terms. While this ruling clarifies the legal landscape, debates continue over the appropriate boundaries between public funding and religious education in school choice programs.
Those who oppose ESAs also often cite the concern that funding for ESAs is diverting already scarce resources away from public schools and the students who remain enrolled there. The federal government’s Impact Aid Program (part of the Elementary and Secondary Education Act of 1965) provides financial assistance “to local school districts with concentrations of children residing on Indian lands, military bases, low-rent housing properties, or other Federal properties,” which means they operate with less local revenue than other school districts because Federal property is exempt from local property taxes. The National Coalition for Public Education argues this aid allows schools to coordinate “comprehensive systems of support for students, and professional development for school personnel,” and ESAs could drain these funds.
Opponents of ESAs often raise concerns that these programs divert limited public funds away from traditional public schools and the students who continue to attend them. One key issue involves the Impact Aid Program, which provides financial support to school districts that have reduced local revenue due to the presence of tax-exempt federal properties such as military bases. Because these districts cannot collect property taxes on federal land, Impact Aid helps to offset the funding gap. Education advocates argue that this aid is crucial for maintaining comprehensive educational services and professional development in affected schools. ESAs could reduce the availability of these essential funds.
Few states have had ESA programs in place long enough to conduct comprehensive evaluations, partly because many laws lack strong requirements for data collection and program assessment. In Arizona, the longest-running ESA program, families of non-special needs students received an average of about $9,782 per child. This amount varies by grade level, with younger students receiving less and older students receiving more. Arizona’s program has grown substantially and now serves nearly 10% of the state’s students.
Despite the availability of ESA funds, many question whether the amounts provided are sufficient for all families to access a full range of educational options. Private school tuition can vary widely and often exceeds the typical ESA award, especially at the high school level. For lower-income families with limited additional resources, these funding gaps, combined with costs like transportation, may significantly restrict their educational choices.
RECIPIENTS
Each state sets its own eligibility criteria for ESA programs, with many initially targeting students with special needs or challenging circumstances such as military families and foster children. Some states have moved toward universal eligibility, allowing all students access to ESA funds, though this expansion often faces political and legal hurdles.
For example, Arizona successfully expanded its ESA program to universal eligibility, the first state to do so, leading to rapid enrollment growth that now includes nearly three-quarters of ESA participants. Across the country, more states are considering or implementing universal ESA programs, reflecting a broader trend toward expanding school choice options. However, these expansions continue to prompt debates and legal challenges regarding funding, equity, and program oversight.
Since local public schools are part of the fabric of a community, this often leads to a community desire to protect local public schools and the concern that if more students have access to ESAs, more students will leave the public school system which could result in a drain of resources from public schools. As mentioned previously, studies attesting to this are limited.
Additionally, some school funding is determined by how many children live within a certain district. Overall funding to public schools should not be seriously affected by a small portion of students choosing not to attend public schools. It may even mean that there are more funds per pupil available in the public school.
Even if universal eligibility is a factor, many states also set enrollment caps to limit the number of students who can enroll in ESA programs. Even with universal eligibility increasing the pool of eligible students, the number of accepted applicants would not increase. Enrollment caps with an expanded applicant pool raise concerns about which students are accepted. ESAs were originally created to give expanded options to students with special learning needs. If all students are allowed to apply for ESAs, there may be tension between deciding whether to prioritize students with special learning needs or ensuring all students have equal access and opportunity to apply.
ACCOUNTABILITY
Accountability and oversight remain significant challenges for ESA programs. States vary in their auditing approaches – some require parents to submit expense receipts, while others monitor transactions through random audits. Despite these measures, fraud and misuse have highlighted vulnerabilities in program oversight. Arizona’s ESA program has faced notable instances involving fictitious students and improper reimbursements totaling hundreds of thousands of dollars. These incidents have prompted the state to strengthen internal controls, increase staffing, and implement technological solutions like AI-driven transaction monitoring. However, as ESA programs grow rapidly nationwide, ensuring effective and timely audits remains a critical concern to safeguard public funds and maintain program integrity.
MEASURING SUCCESS
Academic progress is a key measure of an ESA program’s success. Traditional public schools typically use standardized tests to assess student achievement, and since ESAs involve public funding, there is a reasonable expectation that students should be making academic gains. However, ESA programs generally do not impose curriculum requirements or teacher qualification standards on how funds are spent. While some states require parents to report on their children’s academic progress, the assessments used are often not standardized, making it challenging to evaluate and compare outcomes effectively.
It should be noted that students with special needs typically use alternative assessments, so the requirement of typical standardized tests would be inappropriate for a majority of students using ESAs. If legislation is included to utilize academic progress as a metric of success, careful steps should be taken to ensure that the assessment used to determine this progress fairly reflects the students’ abilities. For example, in the case of special needs students, the same alternative assessments that are used in the traditional public schools should also be used when assessing students utilizing the ESAs. That said, not everyone agrees that academic progress should be used to determine if ESAs are successful.
Another important factor to consider is satisfaction. If parents are pleased with their decisions regarding their child’s education, and the child is learning and living well thanks to the chosen educational environment, then on that personal level the ESA was put to good use. If children are not making academic progress, then parents can choose a different option for their children.
Conclusion
As Education Savings Accounts continue to evolve and expand, their success ultimately depends on the active participation of families, educators, and communities. By empowering parents and students with greater control over their education funding, ESAs invite individuals to take a more personalized and proactive role in shaping learning experiences. This shift relies on families to explore the diverse educational opportunities available and advocate for programs that best meet their student’s unique needs. Community leaders and policymakers must foster transparency, accountability, and access to ensure these programs serve all students effectively. Through informed involvement and collaboration, individuals can help unlock the full potential of ESAs to create a more flexible, responsive, and inclusive education system.
What You Can Do to Get Involved
Measure: Find out what your state and district are doing about education options.
- Do you know what educational options exist in your state?
- If options exist, how many students participate in them?
- What school district are you in?
- What is your school district’s budget? Do you know what the average spending per pupil is?
- Is there an education coalition or task force, or does one need to be formed?
Identify: Who are the influencers in your state, county, or community? Learn about their priorities and consider how to contact them, including elected officials, boards of education, city councils, journalists, media outlets, community organizations, and local businesses.
- Who are the members of boards of education in your state? Who is on your district’s school board?
- What steps have your state’s/community’s elected/appointed official taken?
- Who are the local organizations or groups that are involved in education reform near you?
Reach Out: You are a catalyst. Finding a common cause is a great opportunity to develop relationships with people who may be outside of your immediate network. All it takes is a small team of two or three people to set a path for real improvement.
- Find allies in your community or in nearby towns and elsewhere in the state.
- Foster collaborative relationships with community organizations and school boards.
Plan: Set some milestones based on your state’s legislative calendar.
- Don’t hesitate to contact The Policy Circle team, [email protected], for connections to the broader network, advice, insights on how to build rapport with policy makers and establish yourself as a civic leader.
Execute: Give it your best shot. You can:
- Apply for The Policy Circle’s CLER Program to join a community of like-minded women learning better skills to be effective business and civic leaders in their communities.
- Set up a meeting with your state representatives to discuss their views and understandings of ESAs, or attend school board meetings to ask questions, find out about priorities, and review annual budgets.
- Meet with a family who chooses private or charter schools as an option for educating their children, and ask their views.
- Volunteer at your child’s school to learn about teachers’ views, how the school runs, and how decisions are made.
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