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Education Savings Accounts Are Deceptive in So Many Ways

Under Secretary DeVos’ leadership, Education Savings Accounts (ESAs) are likely to gain more visibility and this is exactly why it is critical to understand what they are. You probably heard Arizona make a big splash in the news by extending universal eligibility to its ESAs. Meanwhile, four other states have some more limited version of such program in place and others are willing to join the movement.

Let’s start with the obvious: ESAs are NOT savings accounts. It will not save money for the States adopting them, nor for the parents who opt-in to use them. It is just a fancier new name for a voucher system, where States transfer the per-student funding equivalent out of the public-school funding to another account for parents who do not want to send their children to public-school. Parents are then given broad discretion to use prepaid VISA cards to pay for their child’s education, anything ranging from online classes, tutoring, textbooks, private school tuition, and other educational materials like science kits and even educational iPad applications.

If anything, they are Education Spending Accounts.

I suspect this rebranding came after policy strategists pointed to the wave of new studies showing the dismals results of existing vouchers programs. Advocates seeking to raise support for ESAs argue that, different from vouchers, ESAs allow for more flexibility in terms of where the money can be spent. They also talk a lot about the possibility of transferring unused funds to pay for college. But for now in Arizona the funds can’t be rolled-over into college savings accounts, and another ESA bill introduced in North Carolina actually prohibits students from using voucher funds on post-secondary education.

Regardless of whether the funds could be used for college, I find the name highly deceptive. Parents cannot save in these accounts nor can they manage them, they are typically held at the State’s department of education or the Treasury Office. In addition, an ESA program does nothing to motivate a healthy savings habit or to develop financial capability among the population they serve. It essentially steals away scant public-school funding and puts it another bucket for families to spend it as they wish.

While it is completely understandable that these accounts could be available for special need students, extending it to all students open the door to a host of longer-term problems that will threaten the sustainability of our public education. Adding insult to injury, initial audits of these programs show that they are very vulnerable to fraudulent behavior, where public funds are being redirected and used inappropriately. More importantly, we need to be prepared for private companies gearing up to attract this money produced by ‘these ESA factories’. We have already make this mistake in higher education: low-quality and deceptive for-profits schools have mushroomed knowing that their 80-90% of their revenue stream can rely on easily obtained federal financial aid.