Ben DeGrow is a Senior Policy Director of Education Choice for ExcelinEd.
The nation’s largest “Day One” school choice program—the Texas Education Freedom Accounts (TEFA) program—is launching February 4th on a remarkable scale, with 600 private schools and more than 200 education service providers already enrolled. From the start, Texas families will have access to a wide variety of learning opportunities—tuition, therapy, curricula and more—funded through state-based Education Scholarship Accounts or ESAs.
ESAs are flexible spending accounts funded by the state and controlled by parents. The first year for any new program is bound to include a few hurdles. ESAs are no exception. After all, creating a statewide system that empowers families to access millions of dollars in education funding while also ensuring accountability and a first-rate customer experience is challenging work. States that were early ESA adopters can attest to this. Critics have pointed to early administrative errors in ESA programs as evidence of extensive misspending; however, the data illustrates a different story.
In Arizona, where 100,000 students participate in its Empowerment Scholarship Account program, audits demonstrate that questionable expenditures represent roughly 1% of total spending—and many of these expenditures are simple mistakes rather than program abuse. By comparison, improper payments in large federal programs such as Medicare, Medicaid and the Earned Income Tax Credit are significantly higher, despite decades of oversight.
Against this backdrop, the case for continued innovation through ESAs is compelling. Undoubtedly, ESA programs hold great promise for students and families by expanding access to high quality, customized learning experiences that meet students’ individual needs. ESAs have strong support among parents and non-parents alike, and growing ESA participation across the United States reflects demand for more tailored learning options. It also signals a new paradigm in how education is funded and delivered. At the same time, rapid program growth is introducing new layers of complexity when it comes to scaling ESAs.
As states expand existing ESA programs, and as more states launch new programs of their own, the next phase of policy success will depend on states’ ability to combine expanded access with greater administrative efficiency and a user-friendly experience.
Education Scholarship Accounts allow families to use state-supervised education funds for a wide range of approved educational expenses, including private school tuition, tutoring, textbooks, therapy services, online courses, and other related costs. Guided by the principle that parents are best positioned to meet their children’s unique learning needs, ESAs are designed to give families the flexibility to create individualized educational experiences.
More than 800,000 students across the United States participate in ESA programs, with more than $7 billion in funding provided to families across 18 states. Approximately half of those states have no restrictions on which K-12 students can participate. The growth of ESAs has redesigned the educational landscape, providing families with access to a variety of options, including:
In states like Florida, with extensive ESA participation, a la carte learning is booming. Microschooling has also grown in popularity with ESAs making it financially feasible for parents to enroll their children in these small, flexible school models that prioritize students’ individual learning needs. These trends illustrate that ESAs are shifting education toward innovation and greater parental agency.
Increased access to educational options is essential, but access alone is not enough for program sustainability. These programs must function well for the families they serve. As these programs are adopted and implemented, states must continue to focus on boosting supply of quality schools and other services, improving customer service and ultimately streamlining administrative systems.
Most ESAs rely on curated e-commerce platforms as the primary means for families to purchase approved education goods and services. These platforms simplify oversight by confining purchases to a set of pre-approved vendors and items, but they also have limitations.
The case often arises where a family’s educational need does not fit within the confines of a curated marketplace. In this instance, many states will allow the family to make the purchase and request reimbursement via their ESA account.
Imagine this scenario: a student preparing for an annual science fair realizes (shortly before the deadline) that their model volcano is missing a key material. If that material isn’t available through the state’s e-commerce platform, families will be forced to either miss the project deadline or pay out-of-pocket and navigate a potentially drawn-out reimbursement process at a later date.
As ESA programs scale, those reimbursement processes are becoming increasingly complicated. In many states, reimbursement requests are reviewed by humans with limited Artificial Intelligence (AI) assistance. This level of human oversight with large-scale programs creates a crippling level of transactional friction that greatly increases the requirement for administrative resources while also being a source of frustration for parents.
Florida provides a prime example of reimbursement challenges at scale. Florida currently leads the country in ESA participation. For the 2025-2026 school year, the program administrator expects to process more than three million reimbursements. This number represents a 50% increase over the prior year’s reimbursements. Technical challenges with program administration have created a situation where, without streamlined improvements, future growth will become unsustainable.
To address this issue, several states have restricted reimbursement altogether. Texas’ recent ESA law does not allow reimbursement as an option, as is the case with Tennessee, South Carolina and Alabama.
As ESA states consider which path to pursue, they are presented with two challenges that must be balanced against each other:
Striking a balance between these goals has major implications for building public trust and ensuring ESA sustainability for the long term.
Across industries, artificial intelligence is an increasingly important tool for program administration and process management, helping organizations manage compliance, oversight and service delivery. As discussed previously, ESA programs overwhelmingly rely on human review and simple rule-based systems to evaluate purchase transactions. This is proving unmanageable at scale. AI offers a path beyond one-size-fits-all oversight by enabling scalable, data-driven, risk-based methods using machine learning.
AI-assisted claims review is a promising way forward, particularly when paired with human oversight. Rather than scrutinizing every reimbursement request, AI models can analyze transaction data to prioritize reviews based on risk—including patterns such as repeated misspending. This allows program administrators to focus their time and expertise where it is most needed, while still retaining decision-making authority.
AI also can support the classification of expenses. Natural language AI models, which use machine learning to interpret and generate human language, can quickly review receipts, invoices and vendor descriptions to categorize purchases and ensure compliance with program rules on expenditures. Over time, these models continue to learn from prior cases to become more consistent in review—while still deferring to people when nuance or judgment is required. Data-driven review and predictive analysis provide a much more efficient means of auditing.
On the customer experience end, AI shows promise for streamlining processes while maintaining proper oversight. Arizona is currently making use of AI for ESA expense review processes. Instead of waiting an extended period for manual reimbursement reviews, parents receive immediate guidance when a request falls outside standard criteria. More complex cases are flagged for human review, ensuring accuracy and accountability where judgment is required. For families, AI-driven platforms can deliver clear, timely information that makes educational purchasing as simple as buying groceries, without sacrificing trust or safeguards.
However, AI’s biggest promise is its use in conjunction with modernized transaction systems, such as standardized purchasing codes. When paired with human review, AI becomes a powerful tool for scaling ESA programs responsibly and efficiently—not a substitute for accountability, but a means of strengthening it. AI thus becomes the impetus for more efficient program administration.
As ESA programs continue to expand, the question is not whether AI will play a role, but whether the right systems—and the right balance between automation and human judgment—will be in place to ensure these programs operate with integrity, efficiency and public trust.
Education is not the first sector to experience friction when it comes to reimbursements. Nearly two decades ago, the healthcare industry became overwhelmed with manual reimbursements—sizeable numbers of employees were spending pre-tax dollars on healthcare expenses through Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). The system was inefficient and costly; it quickly became a source of frustration for users.
The industry undertook automation as its solution, facilitated by standardized purchasing codes and the introduction of HSA/FSA debit cards. Under the automated model, healthcare vendors program their payment systems with codes for eligible healthcare expenses.
When a consumer visits a pharmacy and attempts to make a purchase with their HSA or FSA debit card, the vendor automatically approves eligible items and declines ineligible ones. A customer can buy bandages or pharmaceuticals with their HSA card, but a non-approved expense, such as a magazine, will not be authorized.
The HSA/FSA model manages to balance two goals that also present a challenge for ESAs:
But that’s where the parallels end. In the healthcare sector, the IRS stipulates which products and services can be purchased with pre-tax dollars. When it comes to education, it is individual state legislatures that determine which education expenses are allowable for purchase. To implement a similar purchasing codes program in the education sector, ESAs would need a uniform set of eligible products and services across states.
Despite differences in approved items and services across states, creating a system of purchasing codes can be done—and could be crucial for the efficient scaling of ESA programs. HSAs provide a proven model demonstrating that purchasing codes streamline payments. Adapted for education, purchasing codes can support a wide range of payment automations—including debit cards, e-commerce platforms, and emerging AI-driven purchasing agents. These elements would enable families’ real-time access to education funds and allow for the orderly support of increasingly large numbers of ESA participants.
Human review of every ESA expenditure is unsustainable at scale. But ESA administrators can look to payment systems embedded with eligibility criteria to ease the burden. For families, an improvement in customer service is paramount. The ease of payment at points-of-sale will mirror the way in which people already interact with financial tools in other areas of their lives. True sustainability will be dictated by the experience of program participants.
ESAs undoubtedly represent one of the most impactful shifts in the delivery of education in decades. The increased development and expansion of these programs illustrate a growing acknowledgement that students learn in different ways, and that parent agency is a concern that states are eager to address. The ability of parents to personally direct resources to their children’s education holds great promise for the future of education. However, innovation in policy must also be accompanied by programmatic capacity, efficiency and sustainability.
ESAs present an immense educational opportunity for families and their children. For these programs to grow and function well for posterity, smart infrastructure powered by smart technology must be developed. States can create systems that function seamlessly at scale, through cooperative efforts, the introduction of ESA purchasing codes and harnessing of AI models that free up capacity for humans to tackle other, more pressing issues in program administration.
To learn more about the future of ESA programs and policy, contact ExcelinEd’s Education Choice policy team.
