A hallmark of the Trump administration's education policy agenda, school choice programs aim to provide public funds to families to cover education-related expenses, including for independent school tuition. In the wake of the administration's endorsement of school choice, state legislators are following suit: at least 114 bills have been introduced in 30 states this year that implement school choice programs or expand upon existing state school choice programs.
As more students become eligible to participate in school choice programs, independent schools will undoubtedly encounter more families seeking to use school choice program funds to cover a portion of their tuition obligations. While these developments may be a positive development for independent schools seeking to increase their enrollment, schools should understand the conditions of participating in school choice programs before accepting public funds.
In this article, we have provided an overview of the most common types of state school choice programs currently available, as well as school choice programs recently introduced at the federal level, including the potential implications of independent schools' participation in such programs.
Types of School Choice Programs
School Vouchers
Voucher programs use public funds to finance student attendance at private schools. Payments are made directly from the government to a parent, or to an institution on behalf of a parent, which are then used to support student attendance at an independent school. Currently 14 states and Puerto Rico operate at least one state or local voucher program, including Arkansas, Georgia, Indiana, Louisiana, Maine, Maryland, Mississippi, Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, Vermont, and Wisconsin. The only federally funded voucher program is the DC Opportunity Scholarship Program.
Education Savings Accounts
Education savings accounts (ESAs) are state-funded individual accounts that are controlled by parents and used to cover education-related expenses. Unlike vouchers, which are used specifically to pay for independent school tuition, ESA funds may be used for a variety of education-related expenses, including tutoring, textbooks, independent school tuition and fees, and virtual courses. Currently 18 states operate state-funded ESAs: Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Iowa, Louisiana, Mississippi, Montana, New Hampshire, North Carolina, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wyoming.
Tax Credits and Deductions
Scholarship tax credits or ESA tax credits reduce a corporation's or individual's tax liability for donations made to nonprofit organizations that provide scholarships to attend independent school attendance or ESAs to eligible students. Individual state tax credits reduce an individual's tax liability based on expenses for education-related services. Individual state tax deductions provide a reduction in taxable income based on educational expenses for household dependents that is determined prior to the calculation of tax liability for the household. Refundable tax credits provide state income tax credits for approved expenditures. The credit is considered refundable if the credit exceeds the tax imposed by the state; the excess amount is refunded to the taxpayer. Individual tax credits and deductions are available for a variety of purposes, such as tuition, textbooks, and uniforms.
Twenty-one states currently offer scholarship tax credits: Alabama, Arizona, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Montana, Nevada, New Hampshire, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, and Virginia. ESA tax credit programs are currently offered by three states: Florida, Missouri, and Utah. In addition, three states currently offer individual tax credits for educational expenses (Illinois, Iowa, and Ohio); four states offer education tax deductions (Indiana, Louisiana, Minnesota, and Wisconsin); and five states (Alabama, Idaho, Minnesota, Oklahoma, and South Carolina) provide refundable tax credits.
Federal School Choice Legislation and Voucher Proposals
In addition to state-funded school choice programs, federal lawmakers have recently introduced legislation that, if passed, would effectively create a federal school voucher program. The proposed plan, which has been included as part of the broader reconciliation bill currently in Congress, would amend the federal tax code to allow for the creation of scholarship-granting organizations (SGOs) that would award funds to families to use for private school tuition and other educational expenses. Individuals and businesses contributing to SGOs would receive a 100% tax credit for donations to SGOs. Families would be eligible for SGO funding if their income is up to 300 percent of their area's median gross income.
School Choice Compliance Requirements and Implications for Independent Schools
Although independent schools are not required to accept funds obtained through school choice programs, those that choose to do so should understand the potential compliance obligations associated with the school's acceptance of such funds. These compliance requirements will vary by state, but most commonly, school choice programs require participating schools to comply with state health and safety laws, such as compliance with the state's mandatory background screening procedures. Additionally, participating schools may be required to adhere to state standardized testing schedules as a result of their participation in state school choice programs. Many state-run programs may also require participating schools to comply with certain state and federal non-discrimination laws, including Title IX.
We can also expect the expansion of school choice programs to spur government efforts to exercise increased oversight over participating independent schools' educational programs. Several states, including Arizona, Iowa, and Tennessee, have already introduced legislation that would impose new oversight requirements on independent schools. For example, Arizona House Bill 2885 would require independent schools participating in state-funded ESAs to limit tuition increases for ESA recipients to the inflation rate; require schools to report graduation and chronic absenteeism rates; and require schools to provide services to students with disabilities. Likewise, Arizona House Bill 2889 would require independent schools to disclose the same types of financial data to the state as public and charter schools and undergo regular audits and participate in a state financial transparency dashboard. Tennessee Senate Bill 1249, if passed, would require independent schools to participate in mandatory state assessments; would require independent schools to publish lesson plans and other academic information to the state department of education; and would require all independent school faculty members to comply with state licensure requirements.
Schools should carefully weigh the consequences of participating in school choice programs before deciding to accept public funds. The Venable Independent School Law team is available to assist independent schools in determining the conditions and requirements associated with participation in specific school choice programs.