Education Savings Accounts and Scholarships Matter

The Platte Institute, a non-profit research think tank based in Nebraska, released a report on how to better cater to America’s education needs. Their idea? Use education savings accounts, known as ESAs, or private scholarships to help children of poverty-stricken families to obtain a better quality of education.

The report referred to the stark differences between college graduates and high school dropouts, where the unemployment rate is typically 11% for dropouts and 4% for college graduates. The report also pointed out how Nebraska is seeing rising poverty, where 1 out of every 3 Hispanic children under the age of 17 lives in poverty while the “unauthorized immigrant” population has risen since 2009. It also does not help that Nebraska is seeing a net migration out of the state at the same time.

What is the shining example of ESA success? Out of the 14 states that have ESA-type programs, the best example is the state of Arizona.

In Arizona, businesses and individuals make charitable donations to organizations known as school tuition organizations (or STOs as they’re called). The donors receive a dollar-for-dollar tax credit in Arizona, while in other states like Indiana, donors receive 50% of their donations as tax credit. These donations are specifically given out to poor students as private school scholarships. The Platte Institute estimated almost 40,000 students benefitted from these scholarships last year. And, the caveat of STOs and scholarships is that Arizona law dictates these scholarship be awarded to low-income families.

Other benefits of the STOs and scholarships are that “children from active-duty military families stationed in Arizona are also eligible for scholarships funded through corporate donations,” and last year, up to $43 million in tax credits were handed out as a result of donations to the STOs. Previous studies have concluded that the existence of a private school option either has a positive effect, or no net effect, on student development. The studies and the Platte Institute suggested that there is little risk and high reward for using a private school option.

Logistically, students can use more than one STO scholarship to fund their education, but you cannot combine both ESAs and STOs. The main difference is that a STO is a scholarship and an ESA is a savings account. ESAs are paid for by the state and are deposited in a debit account for parental use, where parents use a debit card to enroll students in education, like online classes, personal tutors, private school tuition, college classes or college in general.

Comparatively, Nebraska does not have alternative education options, like private schools, and there is no charter law on the books. The report detailed how the achievement gap between white and black students in Nebraska has not changed much since 1992 at 27 percentage points, and how Nebraska education testing is outpaced by at least 29 other European and Asian countries.

But, Arizona-type laws will also reduce costs for taxpayers in Nebraska. In Arizona, “average scholarship awards are less than $2,000 for mainstream students and under $4,000 for students with special needs. The average per student funding in Arizona is $8,907 for mainstream students and $18,700 for children with special needs.” An analysis done by a local newspaper concluded that scholarships “saved taxpayers $8.3 million from 1999-2007” and “Arizona’s tax credit scholarships are worth $7,000 to $15,000 less than taxpayers spend per student in traditional public schools.”

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