With all the talk of sweeping voucher proposals, it’s worth looking at a different approach to expanding school choice that might fly under the radar: The use of tax credits to expand educational choice.
Right now, two types of savings plans extend tax benefits to families who set money aside for educational expenses.
Coverdell education savings accounts can grow tax-free and pay for private school tuition or other services, but they’re capped at $2,000 per year. State-sponsored 529 plans (such as Florida Prepaid) are also exempt from most taxes, but families face financial penalties if they use them for expenses other than college tuition and fees.
Rep. Luke Messer, an Indiana Republican and founder of the Congressional School Choice Caucus, has filed legislation that would broaden the potential uses of 529 plans to include K-12-related expenses, and lift caps on Coverdell accounts. (He has described this legislation as an effort to make private school education more affordable for the middle class.)
As Adam Peshek of the Foundation for Excellence in Education told Education Week:
Congress could find some way to essentially combine the two and create a new education savings account applicable to K-12 (the way Coverdell is now), but without Coverdell accounts’ $2,000 annual contributions cap. “You could have some real money to play around with,” Peshek said.
The downside
By itself, it’s hard to see how these savings accounts could meaningfully expand educational choice for low-income families, who likely can’t afford to set much money aside for private school tuition, tutoring or other uses, even with tax advantages.
Research has shown that the existing education savings plans don’t really increase college-going by making tuition more affordable. They largely serve as financial benefits for middle-class families. That doesn’t necessarily mean they aren’t a good idea, but it does raise questions about what impact they would have at the K-12 level.
The upside
The real potential of this idea may lie in how it could interact with school choice programs states create.
A family of four earning $65,000 a year in Messer’s home state of Indiana might be eligible for a voucher worth 50 percent of the cost of educating that child in a public school. That could still leave private school tuition for two children slightly out of reach. Expanded tax benefits might help that family close any gaps between what private school tuition costs and what their household budget allows.
In Nevada, lawmakers have voted to make more children eligible for an education savings account worth roughly $5,100. Ideally, low-income families would receive a larger amount. And middle-class families might have to kick in money of their own to cover the full cost of private school tuition or other options for their children. For them, tax benefits for private education savings could serve as useful add-ons to any public funding they receive.
Real talk
While the specifics vary, the idea of federal tweaks that enhance state-created educational choice programs is a key element of the educational choice proposals floated by the likes of Jeb Bush and Donald Trump.
In the future, if more states create Nevada-like education savings accounts, portable Title I funding could help top off the accounts for low-income students, and new tax-advantaged savings plans could help middle class families supplement the accounts with their own money.
In other words, when pro-school choice Republicans control the legislative and executive branches of the federal government, state-level policies will still matter a lot.
If the federal government starts creating add-ons for families who need educational options, those families are still going to need new, better options to choose from. A light-touch federal government could help here, too. We’ll look at that next.
