Taxation Finds Representation in Smart Education Reform

On the heels of tax season, Americans are looking for breaks. The date for filing may have passed, but some education reform movements have maneuvered into smart funding avenues with big tax benefits. This year, more Americans than ever before are eligible to take advantage of special education tax incentive programs that not only support increased opportunities, but save taxpayer dollars.

A trending education reform movement, state-run savings or scholarship accounts, are on the fast track to becoming law in as many as a dozen states, where tax-exempt dollars can translate into long-term savings.

Special-needs students are one prominent focus standing to benefit from this trend.  Even in the lowest- spending states, costs for special needs students can exceed $20,000 annually. Other programs benefit children from low-income families.

For all Americans, the federal Coverdell Education Savings Account program and 529k plans have offered parents long-term, interest-building, tax-exempt vehicles for education savings since the late 1990s. Growth has slowed for Coverdells, and 529ks tend to be isolated in wealthier households. Education scholarship accounts have the potential to reinvigorate both long-term savings programs and affect broad improvement in students’ postsecondary financial options. 

Empowerment Scholarship Accounts in Arizona and Personal Learning Scholarship Accounts in Florida open wide the horizon of educational opportunity. Both programs, successful and cost effective, direct a portion of per pupil funding into eligible student accounts. Parents or guardians can direct scholarship funds to best fit student needs, whether that be a private school that can tailor a more personalized academic track, private tutors, or therapists to address special needs, online or college courses or savings for postsecondary education.

Fiscally smart and academically effective, programs like these are fast gaining legislative favor.

Nevada and Mississippi in recent weeks became the third and fourth states to pass education scholarship bills. Nevada businesses are now eligible for tax credits for scholarships for children from low-income families.  In Mississippi, students on current Individualized Education Plans will have access to up to $6,500 under the “Equal Opportunity for Students with Special Needs” program and allow a better customization of education for disabled students in the state, who currently graduate at a rate of 23 percent. The program would immediately reduce education spending.

State education scholarship accounts are demonstrated to save schools ten percent per pupil. Arizona could save nearly $10 million this coming school year if enough eligible students enroll, assuming a population comprised within an average range of disabilities. Furthermore, participants can contribute leftover scholarship funds to Coverdell accounts, in any amount up to the $2,000 federal cap.

Florida’s model is the fastest growing, bypassing Arizona’s enrollment number within its first year.

Florida has already awarded 1500 scholarships; at an average $9,000 per pupil, that is a savings of $1,350,000. The popularity of the program is driving legislation to expand beyond disabled students.

Parents in Florida can also contribute scholarship funds to a Florida Prepaid Plan, securing tuition costs at current rates. There is no limit on contribution amounts and PLSA funds roll over annually.

In an otherwise barren landscape of school choice, Montana legislators passed Senate Bill 410 this spring. Sponsored by Sen. Llew Jones (R-Conrad), the bill would grant taxpayers a maximum $150 tax credit for donations to "innovative educational programs." The state's House passed a similar bill granting $1,000 tax credits for elementary and secondary school tuition, in essence creating the first tax credit scholarship program in the state. 

Education reform efforts remain largely population specific -- catering to specific groups of eligible students. Scholarship accounts have continued in this trend by focusing initial legislation on disabled students, but bypassing restrictions based on household income, freeing middle- and upper-level income families from qualification discrimination.  Special-needs students are frequently among the most underserved students in many traditional public schools. These students represent the most costly population in an education system facing tight budgets around the country.

Currently in the U.S. Congress, newly-introduced Scholarship Tax Credit bills by U.S. Sen. Marco Rubio (R-FL) and U.S. Rep. Todd Young (R-IN) would allow a dollar-for-dollar tax credit of up to $4,500 for individuals or $100,000 for businesses for contributions to nonprofit scholarship organizations. Students with family incomes up to 250 percent of the poverty line would be eligible to receive scholarships.

Especially in states where taxpayers’ return on their education investment seems less certain, diversifying education funds through state-based scholarship accounts can make meaningful returns, both academic and financial, a reality.