As education savings accounts (ESAs) become an increasingly popular tool for supporting diverse educational needs, it’s essential for program administrators to navigate the complexities of expense review.
ESAs are state-funded financial accounts designed so families can customize educational experiences for their children. These accounts give families greater control over their children’s education by allowing them to use the funds for a wide range of educational expenses, including tuition for private schools, homeschooling costs, tutoring, special education services, and more.
Parents can either pay for those goods and services through an online platform that lists state-approved expenses or be directly reimbursed for them. They may also need someone to help them decide which services are the best fit for their children or for someone to help them if they run into a problem.
Adequate start-up funding is critical to the success of new ESA programs. The initial stages often require more resources for setup, outreach and system development than later stages. This fee covers essential costs like staff salaries, technology infrastructure and initial marketing efforts to raise awareness about the new program. In New Hampshire, the legislature allowed for an administrative fee of up to 10% to ensure that Children’s Scholarship Fund had the resources necessary to get the program up and running.
However, as these programs mature and establish more streamlined operations, it’s prudent for administrative fees to decrease. Launching a successful ESA program requires more resources than simply maintaining one. A lower fee structure not only demonstrates fiscal responsibility and economies of scale, but also ensures that a larger portion of funds is directed toward the students these programs serve.
Program administrators or the legislature should regularly review their fee schedules – ideally, every few years – to align with the evolving needs of their program.
Likewise, scaling an ESA program effectively, particularly in its nascent stages, is best accomplished with a direct legislative appropriation. This is especially true for larger programs that cater to a substantial number of new participants. An upfront investment can equip these programs with the necessary resources to establish robust administrative processes and offer comprehensive support to families navigating the system.
Legislative appropriations in the first biennium can act as a catalyst, enabling programs to quickly reach a scale where administrative fees will sustain long-term operations before likewise being scaled back.
One of the greatest challenges in administering education scholarship accounts (ESAs) is finding the right balance between flexibility and operational efficiency when it comes to reimbursing families for educational expenses. While it’s important to ensure that funds are used appropriately, overly stringent controls can hinder the ultimate goal of the program: to facilitate diverse educational opportunities for students.
There’s a natural tension between the need to scrutinize expenses and the reality of misspending. However, an overly cautious approach can bog down the system, creating delays and frustrations for parents and education providers. An upset customer base, with families being unable to spend their funds, and providers waiting too long to receive their payment, will damage these programs far more than potential and rare instances of minor misspending.
To address this, artificial intelligence (AI) may be a game-changer. AI algorithms could efficiently analyze expense requests, flagging only those that are ambiguous or potentially non-compliant for a staff member to manually review. States are already looking for ways that AI can improve how they run government. This approach allows for speedy processing of straightforward expenses while maintaining oversight on more complex or unusual cases. Ideally, the technology could “learn” over time, reducing the number that require manual review.
Generally speaking, once a certain expense is approved, that expense should be approved into perpetuity. An administrator shouldn’t need to wade through the same paperwork for every child, slowing down the process and creating distrust between the program and parents.
It’s important to recognize that while some level of misspending is inevitable in any financial system, the vast majority of parents will use ESA funds responsibly. Most participants are motivated by a genuine desire to provide the best possible education for their children. Instead of an intrusive audit-every-expense system, which can become even more cumbersome as programs continue to grow, a risk-based audit system is more practical and respectful of parents’ intentions.
A system of periodic, random audits, and targeted reviews based on risk assessments safeguards against significant misuse of funds. It further supports a more positive, cooperative relationship between the program and its participants.
Offering diverse, parent-friendly payment methods is essential to a successful ESA program. Integrating a seamless online platform alongside a flexible reimbursement system caters to various parental needs, ensuring ease of access to a broader range of education providers. By prioritizing accessibility and convenience, ESA programs can support more families in their educational journey, making it easier for parents to invest in their child’s learning, development, and long-term success.
As more and more states adopt and implement ESA programs to provide education options and flexibility to families and students, policymakers and program administrators can balance stewardship and operational agility. To optimize these programs for success and sustainability, policymakers should consider the following recommendations:
Effective program administration always requires tradeoffs. As ESA programs expand and evolve, continuous refinement in these areas will be crucial to their enduring success in the educational landscape.
