Helping School Choice Work

Ever since Ronald Reagan declared his support for school vouchers during his first term as President, Republican leaders have increasingly taken up the call for school choice. Total enrollment in school choice programs has accelerated in recent years as the programs have been expanded in several states across the country, but increasing the number of private and charter schools remains a critical obstacle. In this National Affairs article, AEI scholar Michael Q. McShane elucidates the challenges and opportunities facing the charter school movement as it scales up from small local experiments to an established practice. For school choice to live up to its potential and for K-12 students and parents to have a true choice in education, further reform is imperative.

McShane identifies several areas which are in need of reform, beginning with school capital financing. Currently, charter and private schools are at a disadvantage in constructing and maintaining schools. Public schools raise money by issuing tax-exempt bonds, whereas private schools usually must borrow from banks at considerably higher interest rates or rely on donors to raise funds. And when states set up school voucher programs, the programs typically function similarly to Indiana’s Choice Scholarship program, which redirects 90% of the state’s contribution to a child’s funding to the school of choice. This money covers the marginal cost of educating an additional child, but does not include funds for capital improvements or school construction. Given these structural challenges, students are left with too few private and charter schools.

In order to solve this problem, McShane presents Colorado Educational and Cultural Facilities Authority as a positive example. The Authority can issue tax-exempt bonds to educational and cultural bodies with a Colorado connection. It is self-financing and doesn’t require public funds, but it allows private schools access to a financial source significantly cheaper than bank lending. Similar state-chartered and state-regulated entities could drastically alleviate the private school shortage. McShane also examines social-impact bonds, which could be particularly advantageous to boosting high-school graduation rates.

Another challenge facing the school choice movement is avoiding adverse selection in student acceptance. Given the aforementioned barriers to expanding school supply, private schools have limited enrollment capabilities, providing a strong incentive to accept only the best and least-costly students. Enrolling special needs, non-English speaking, or low-income students often comes with higher costs, and few existing school choice programs take these extra costs into account when funding vouchers. School voucher programs must move beyond the simple “average” cost of educating a child and provide funding closer to the cost of educating the actual student, including the additional special-needs funding that benefits public schools.

Many of these reforms can and should happen through the expanded use of Educational Savings Accounts, or ESAs. Governments would deposit a set amount of funds into a child’s ESA every year, and parents could spend that money on school tuition, books, standardized tests like AP, SAT, and ACT exams, and online courses. Special needs students would get additional funds for supplementary services and therapy.

Properly regulating private schools also proves to be a challenge. Policymakers need to prioritize accountability while granting private and charter schools the freedom to create the innovative learning environments that provide the foundation for their success. McShane identifies holding schools accountable for outcomes, but not methods, as a key compromise. Partnerships between public regulators and schools to develop metrics and standards through “performance contracts” before the schools open, then ensuring the schools are live up to their promised potential, have also been successful.

As McShane details in this article, there are numerous reforms needed in order to educate the next generation of students in America. School choice has come a long way, but, in order to keep raising success rates, state and federal policymakers must expand financing opportunities for both schools and parents while avoiding the burdensome regulations that could stifle educational innovation. As McShane concludes:

“Policymakers must approach school choice with a balance of ambition and humility. The goal of developing an education market is indeed ambitious: School choice marks a radical departure from the traditional method of providing our children an education in America, and it presents a possible way to transform the education children receive in many of our poorest and most despondent communities. But at the same time, school-choice policies are trying to harness a force that is, by its nature, beyond any policymaker’s ability to control. Any successful school-choice program will rely not on the good intentions of government employees but on the capacity of society to generate viable alternatives to what the government does now. This fact means that, for a policy of school choice to succeed, policymakers will have to step back and relinquish control.”

To read Michael Q. McShane’s full ‘Helping School Choice Work’ article in National Affairs, click here.