Wednesday, September 21, 2011

Education Savings Accounts can help customize education, expand choice

[Guest post by Dan Lips]

Besides the traditional strategies to give families greater power to choose the right schooling option for their children, Oklahoma policymakers should consider new strategies as well. Some states are now considering education savings accounts as a new vehicle to allow families to customize their children’s education.

For decades, federal policymakers have advocated establishing tax-free savings vehicles to give families more control over funds spent on their children’s education and to save for college costs. The federal government currently allows two forms of education savings accounts (ESAs)—so-called 529 College Savings Plan accounts that allow families to save tax free for college and Coverdell ESAs that allow families to save for both K-12 and higher education expenses. Some states, including Oklahoma, provide state tax deductions to encourage families to save for their child’s education. For example, parents in Oklahoma can claim a tax deduction of up to $10,000 (or $20,000 for joint-filers) for contributions made into 529 College Savings Plan Accounts. As of July 2010, the Oklahoma 529 College Savings Plan had more than 42,000 accounts with a total savings of almost $360 million.

Building on the popularity of the current ESA programs, Oklahoma could enact a program to provide state-funded K-12 education savings accounts that would give parents the flexibility to create a customized learning experience to best suit their children’s needs. In 2011, the Goldwater Institute, a Phoenix-based think tank, published a report that could provide a model for a state-funded ESA plan for Oklahoma. Under the Goldwater Institute’s plan, a parent could receive a portion of their children’s share of state public education funding in a state-authorized ESA if they agree to forgo enrolling their child in a traditional public school. Parents could use that funding to purchase the best education services for their children, such as private school tuition, online or virtual education programs, homeschooling curricula, and tutoring services.

State-funded ESAs would offer some significant improvements over traditional student-centered education initiatives like public school choice and scholarships or education tax credits. For example, ESAs would give families greater flexibility to use education dollars to best suit their children’s needs, spurring innovation among education service providers, including virtual and online learning programs.

A state-funded education savings account program would require that the state implement an appropriate oversight and accountability mechanism, to be established to ensure that funds were spent appropriately to benefit children’s education. But existing programs like Oklahoma’s 529 College Savings Plan would provide practical models for policymakers designing a transparent and accountable state-funded ESA program.

In 2011, Arizona enacted a new state-funded education savings account (ESA) program. Specifically, Gov. Jan Brewer signed into law SB 1553, legislation that will require the state to deposit 90 percent of the state aid that would be spent on a child’s education in an “Arizona Empowerment Account.” To be eligible, students must be eligible for special education services and, to receive an account, families must agree not to enroll their child in public school and therefore take control over the responsibility for their child’s education. Beginning in the fall of 2011, as many as 17,000 children will be eligible to participate in the program.

Other states are also considering state-funded ESA programs similar to the Arizona program. In 2010, in Florida, Governor Rick Scott’s transition team announced the incoming governor’s support for the idea of providing universal state-funded education savings accounts for all children. Reihan Salam, a conservative writer and editor of National Review Online, called Scott’s proposal one of “the most significant, transformative ideas I’ve ever seen advanced by an actual elected official with any real power.” In April 2011, a Florida state Senate education committee approved SB 1550, an education savings account proposal that would allow parents to receive 40 percent of a child’s share of public school funding in an ESA to be used for private school tuition, tutoring, or for savings for college. In Ohio, 38 state representatives are sponsoring a bill that would expand Governor John Kasich’s proposed school voucher program to incorporate an education savings account mechanism, allowing families to save funds not spent on private school tuition for other educational purposes.

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