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What are Tax-Credit Scholarships?

• Adam Peshek

During National School Choice Week, ExcelinEd’s Adam Peshek is highlighting unique aspects of educational choice policy. Today, Adam explores tax-credit scholarship programs.

Check out related posts on charter schoolseducation savings accountsways the federal government can support school choice and opportunities for states to advance school choice through ESSA.


Tax-credit scholarships are one of the fastest growing school choice programs in the country. These programs incentivize individuals and businesses to donate to nonprofit organizations that provide tuition scholarships to eligible students. In exchange for their donations, donors receive a tax credit from the state—often a 100 percent, dollar-for-dollar credit. Through this process, tax-credit scholarship programs use entirely private funds and have consistently held up against lawsuits claiming that they use public dollars.

In 2015-16, there were 20 tax-credit scholarship programs in 17 states educating more than 230,000 students. The vast majority of programs (75 percent) are means-tested, meaning students are only eligible to participate if their family income falls below a certain income level.

Chart for Tax-Credt

Florida: US’s Largest Private School Choice Program

Created in 2001, the Florida Tax Credit Scholarship Program is the largest of its kind in the country—awarding more than 95,000 students a $5,886 scholarship to attend the private school of their choice. To be eligible for a scholarship, the child’s family income must be no greater than the income level to qualify for the federal free or reduced price lunch program (about $45,000 for a family of four).

Businesses in the state are able to receive a dollar-for-dollar credit for up to 100 percent of their tax liability. In the 2016-17 school year, the program is capped at $559 million—by far the largest single source of private school choice funding in the United States. This cap has been the result of steady demand over the program’s 15-year history—any time contributions exceed 90 percent of the cap, the cap increases automatically by 25 percent for the following year.

Tax-Credit Scholarship Map

Benefits: Academic and Financial

Independent evaluations of the Florida tax-credit program have shown positive results for students and taxpayers.

One typical attack against choice programs is that the students who need them most, lower-income and lower-performing students, are the least likely to participate. The evidence from Florida has shown the opposite. Dr. Cassandra Hart from the UC-Davis School of Education compared students who applied to tax-credit program to those who were eligible but chose not to apply. She found that participants disproportionately came from public schools with lower academic quality and higher rates of violence than nonparticipants, and that those participating entered the program with lower math and reading score than their peers.

In an annual review of the program for the Florida Legislature, Northwestern University’s Dr. David Figlio found that, “The typical student participating in the program tended to maintain his or her relative position in comparison with others nationwide. It is important to note that these national comparisons pertain to all students nationally, and not just low-income students.” (Emphasis added). In other words, despite being more economically and academically disadvantaged, students in the Florida Tax Credit Scholarship Program maintained academic gains comparable to all students nationwide.

And it’s not just participating students that are benefitting. For another study, Drs. Hart and Figlio teamed up to examine whether students in public schools benefitted from the program. They found that public school students living in areas with more private school options saw test score gains at higher rates than students living in areas with fewer private options nearby after the program was created.

And, if helping the most disadvantaged students succeed and improving public school performance were not enough, researchers have also found that the program saves taxpayers money. A study by Florida’s Office of Program Policy Analysis & Government Accountability—the state legislature’s research body—found that the program saves taxpayers $1.49 for every dollar lost in business income tax.

An End to Legal Challenges in Florida

It’s no surprise that opponents of school choice have repeatedly attempted to shut down the country’s largest and most successful private school choice program. In 2014, Florida’s largest teachers’ union filed a lawsuit against the program, claiming it violated the state’s Blaine Amendment and constitutional language requiring the legislature to create a system of public schools.

Fortunately for the 95,000 students in the program, the Florida Supreme Court declined to hear the case, agreeing with a lower court that the plaintiffs had no standing to sue. This decision is just the latest in the long line of legal challenges levied against tax-credit scholarship programs. However, not a single tax-credit scholarship program has ever been struck down by a court.

Tax-credit scholarship programs provide quality educational options for students, lead to academic benefits for students who remain in public schools, and save taxpayers money. I challenge you to name another government program with these characteristics.

About the author

Adam Peshek @AdamPeshek

Adam Peshek is Managing Director of Opportunity Policy at ExcelinEd, where he provides strategic support to state leaders interested in developing, adopting, and implementing policies that increase educational options for children. He has provided expert testimony in more than a dozen state legislatures and is a frequent commentator on ESAs, school choice, and education policy across the country. He is also the is the co-editor of the first published volume on ESAs, Education Savings Accounts: The New Frontier in School Choice. Adam currently resides in Atlanta, Georgia and is a Senior Fellow with the Beacon Center of Tennessee.