Surge in Education Savings Accounts Was Decades in the Making

Advice: “to not slow down”
Iowa Governor Kim Reynolds reacts after signing a bill that creates education savings accounts, Tuesday, Jan. 24, 2023, at the Statehouse in Des Moines, Iowa.
Iowa Governor Kim Reynolds reacts after signing a bill that creates education savings accounts, Tuesday, Jan. 24, 2023, at the Statehouse in Des Moines, Iowa.

In the summer of 2015, I sat at my desk and Googled “health savings account providers.” At the time, I had been in states across the country advocating for creation of education savings account (ESA) programs. Arizona’s trailblazing ESA program had passed a few years earlier, Florida’s program was in its first year, and legislators in Mississippi, Tennessee, and Nevada had just enacted their own programs.

But there was low confidence in the sector’s ability to actually administer these things. The word on the street in Arizona, for example, was that the state department of education was having a hard time implementing its program—despite only serving around 1,000 students. Parents were frustrated while waiting for reimbursements, there was a huge backlog, and there was concern that some parents could be misusing funds.

What we needed were some technically savvy and experienced program administrators to come to the rescue.

Health Savings Accounts had been the analog we were striving to reach. HSAs were diffuse in the population, gave people more spending power, were fairly easy to use, and had a low incidence of fraud. So, with the help of Google, I scoured company websites and LinkedIn profiles, then shot off dozens of emails to unacquainted individuals in a sector I knew little about—all in the hope they could help our little programs.

A handful of people responded, a few informational meetings took place, and a couple HSA administration companies tried out ESA administration services. One company even put up some capital to build out services for Nevada’s ESA program—the first universal program enacted in the country. The program was sued, the state’s supreme court sided with the plaintiffs, and the nascent program was shut down before it could get off the ground. To say it was dispiriting is an understatement.

Plenty of ed-reform friends looked on with skepticism—as they still do today. School choice is fine—but full-on education choice? There just wasn’t the infrastructure to create a parent-friendly and fraud-proof system, let alone the infrastructure to support parents in making “quality” choices.

Many were undeterred and kept pushing. More suboptimal ESA programs were created. Skeptical lawmakers amended bills down so that something like maybe 100 kids across the state could actually use or benefit from the program. But we worked to expand and improve.

That work has paid off. Today there are twelve ESA programs, with the four that offer universal eligibility all having been enacted in the past couple of years. People have gone from confusing ESAs with Coverdell accounts to now using ESAs as shorthand for education choice in policy circles. Lawmakers and advocates on the ground are pushing for more of it, and other states are on the precipice of passing major ESA policies.

Many friends in the reform space are again urging caution. It’s too big, too soon, with not enough guardrails. Parents might make bad decisions. Bad press will lead to the programs’ demise.

Of course we want to keep programs functional and up and running. It’s fairly demeaning to assume we just woke up one day and didn’t think this through. We’ve been here talking about ESA accountability versus optionality for the past couple of decades. We have been investing time and treasure in a wide range of activities—creating communities of practice among program administrators, investing in parent navigation services and organizations, identifying and sharing lessons learned, improving rules and parent handbooks, creating parent review committees, and much more.

We’re far from implementation nirvana, but gone are the days of cold-calling random companies to explain the concept and beg them to help out. Today, at least five companies compete over state RFPs to help with the administration of ESA programs—creating a healthy, competitive market to make parent-friendly and accountable services that stand out from the pack. Parent support organizations are developing locally to help parents navigate options by connecting them to real humans to talk through options. Nonprofit organizations and philanthropies are getting the word out to disadvantaged communities to ensure that those with the least are armed with the most information.

But there is an important nuance. These efforts are not for regulators. They aren’t meant to slow growth to a pace that bureaucrats are comfortable with. And we’re not focused on limiting ESA expenses beyond those that are objectively inappropriate. The aim is to effectively move away from the precautionary principle that has dominated education policy for the past several decades, and towards a more permissionless approach that places far greater control with families and educators to determine quality.

The infrastructure is being developed because advocates continued to push for better-designed, functional programs that serve a larger population. They did not fall into the classic education-reform trap of leading with regulations to suffocate a market before it even starts to serve families. As the market grows, so will the demand for education navigators and counselors, platforms to streamline approved purchases, rating systems that capture the lived experiences of families so that others may benefit from their views—and maybe even HSA-like debit cards.

Will this work satisfy our interested but skeptical friends? I’m not sure. I look at the long list of subjective ESA expenses and think that’s great. Many have said it opens us up to attacks. But as Samuel Johnson once said, “Nothing will ever be attempted if all possible objections must first be overcome.”

So my advice to ESA advocates is to not slow down. The wave of ESAs happening now was built on a decade of trial and error, with lots of error along the way. Had we heeded the warnings of those before, today’s wave would be a trickle.

Adam Peshek is Senior Director & Senior Fellow at Stand Together Trust.

This post originally appeared on the Fordham Institute’s Flypaper blog.

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