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Thursday, February 2, 2017

This Kind of School Choice Is Superior to Vouchers

Not all school choice programs are created equal.

Private school choice programs in the United States come in four basic forms: individual tax credits, tax credit scholarships, vouchers, and Education Savings Accounts (ESAs).  Voucher programs are the most well-known type of private school choice.  While voucher programs are desirable for individual students and the societies in which they reside, ESAs have a few important advantages that make them more effective, according to economic theory. (For more information on vouchers, see “School Vouchers Give Parents More Choice in Education.”)

Voucher and ESA Definitions

Vouchers allow families to use a fraction of their public school funding for tuition at a private school of their choice.  ESAs allow families to allocate a portion of their public school funding amount to a government-authorized savings account, if they choose to opt out of their public school.  ESA funds can be used for various education-related expenditures such as private school tuition and fees, online learning, tutoring, and even college costs.

Five Economic Advantages of ESAs

While the flexibility of ESAs appears beneficial relative to vouchers, it is important to examine the economic implications of the policy.  Here are five reasons why ESAs are expected to outperform vouchers:

  1. Specialization:  Education and schooling are not the same thing.  While vouchers allow for private school choice, ESAs allow for educational choice.  Since all children are unique, the enhanced customization granted through ESAs should lead to a better match between students and their educational needs.
  2. Price Differentiation Incentivizes School Improvement:  When tuitions are fixed, as in a voucher program, the price of all schooling gravitates towards that amount.  Since schools will move towards the set price, quality will deteriorate.  Why take the risk of producing an innovative educational product if you know that you will not be compensated?  ESAs allow families to reward high quality private schools.
  3. Price Differentiation is Needed for Efficiency:  Since families know that they can save their ESA funding for other educational expenses and even college costs, they have a huge incentive to economize.  Just like with any other product, families will seek the best school that they can find at the lowest price.  The result?  Private schools are incentivized to keep tuitions low and quality high.
  4. Price Differentiation Entices More Providers:  Suppose a provider realizes that they can serve a certain group of students at the same level of quality for a lower price. The provider will have a better opportunity to do so in an ESA setting since families can spend less than the full amount on school tuition if they desire.  Additionally, providers of all educational services, such as tutoring, transportation, college preparation, and online learning, will have the same incentive.  The result of increased market entry: prices drop while quality increases for all educational services.
  5. Positive Externalities of College Enrollment:  Since ESAs allow families to save excess funding for college costs, children will be more likely to receive higher education.  Consequently, society may benefit from additional citizens attaining higher levels of education overall.

Not all school choice programs are created equal.  Since ESAs allow for enhanced specialization and price differentiation, I expect that they will outperform voucher programs.  More importantly, since ESAs are more well-grounded in accepted economic theory, I expect they will allow children to have access to an enhanced educational experience and a better life.

  • Corey A. DeAngelis is the Director of School Choice at Reason Foundation and an adjunct scholar at Cato Institute.