4 reasons to support education savings accounts

Published May 13, 2015

by Bob Luebke, Civitas Institute, May 12, 2015.

School choice remains a top education priority for the Republican-dominated North Carolina General Assembly. While much of the focus this legislative session has been on stabilizing and expanding existing programs and quietly waiting on the state Supreme Court to decide on the constitutionality of the Opportunity Scholarship Program, North Carolinians may be getting a peek at what the next iteration of school choice may look like.

HB 916, Personal Savings Accounts/Disabled Students, introduced by Rep. Bert Jones (R-Rockingham), establishes the “Personal Education Scholarship Savings Program” for special-needs students. It’s the first attempt by the legislature to develop what are commonly called Education Savings Accounts, or ESAs for short. Although HB 916 may not be passed this session because of needed changes and other priorities on the school choice agenda, you can be sure ESA legislation will be reintroduced in subsequent legislative sessions.

It’s a national trend. Four states (Arizona, Florida, Mississippi and Tennessee) now offer ESA programs, with three of those programs being passed within the last year. More than 10 other states have ESA legislation that was introduced and considered during the last legislative session.

There are strong reasons why policymakers and parents should support ESAs.

  1. They can save money. ESAs work by providing parents with a percentage – usually ranging from about 85 to 95 percent – of per pupil state-based funding. The funds are transferred to parents and they can use the money to purchase approved educational expenses, such as tuition, books and tutoring. Administrative costs are covered by designating a percentage of the remaining funding for such expenses. Such costs can often range in the 3 to 8 percent range. Since ESAs can be a vehicle for helping children to attend private schools, and since the costs of educating children in many private schools is less than at public schools, ESAs can produce real savings for states and local school districts.
  2. ESAs fill a need. To date, aside from Arizona, ESAs have been mostly focused on special-needs populations. That is because many special-needs students are inadequately served in schools. Many schools lack the resources and staff to address their educational needs. ESAs empower parents to select the school that best fits their child’s educational needs.
  3. ESAs Offer Value and Efficiency. Our system of public education is broken. North Carolina spends more than $8 billion annually on K-12 public education, yet student achievement has been disappointing. Policymakers and parents agree that schools need to be run more efficiently. Part of our problem is that our current system is riddled with perverse incentives so that efficiency is not rewarded. ESAs offer parents an opportunity to spend their own money on the educational needs of their children. As such, parents have an incentive to maximize the educational value their children receive – especially if the ESA includes a provision that any savings can be kept and rolled into a college fund.

School choice provides parents the opportunity to shop and make educational choices. Vouchers have helped parents make many of those choices. Because vouchers are designated for an express purpose and can only be spent in one lump sum, ESAs can work to instill real value and economy in marketplaces long dominated by monopolies that cared little about parental preference.

  1. ESAs can spur educational innovation. ESAs empower parents with the ability to customize educational markets. In so doing, ESAs will help propel educational innovation. Market forces will come to bear on all schools, public and private. If school suppliers are responsive to these changing forces, they will adapt and survive. If not, they will fail. Parents will drive these changes. These added pressures could propel significant changes in the educational marketplace in North Carolina in the same ways that higher education has been revolutionized by educational options such as skills-based training and Massive Open Online Courses (MOOCs), which provide education to many without the students actually being on campus.

We’ve mentioned the many advantages of ESAs, but they do face challenges. They mostly concern implementation. How to determine what expenses could be purchased with ESA funds is one concern Arizona had to face, as well as how to control for fraud. States with Blaine amendments, which bar the use of state aid to parochial schools, have another hurdle to clear. However, the 2002 Supreme Court decision Zellman vs. Simmons-Harris upheld the constitutionality of a school voucher law. North Carolina does not have a Blaine Amendment.

ESAs offer families significant advantages over the traditional school choice programs. Parents control spending. ESAs incorporate incentives to seek the greatest value for the dollar and create incentives for educational providers to customize services in response to the needs of a changing student population. For all these reasons, ESAs are likely to be part of the educational landscape in North Carolina and across the country for years to come. The real question is: What form will they take? Let’s get the discussion started.

For additional reading on ESAs see:

Education Savings Accounts Can Give NC Families More School Choices

States Weigh Turning Education Over to Parents


May 13, 2015 at 9:11 am
Richard L Bunce says:

Sounds great... parents need every tool they can get to provide their children with the education they deserve. The government education industrial complex will of course attack this program with everything they can muster. NC Policy Watch will no doubt put one of their "hardline" progressives on it before the end of the month.