July 14, 2015 | by Dan Lips Print

Several state governments in the United States have taken a bold step to give parents the ability to control their education by offering K–12 education savings accounts (ESAs). ESAs are flexible spending accounts that parents can use to purchase education services for their children, and a significant refinement of Milton Friedman’s original school voucher idea. This article explains how ESAs could be a key to improving the nation’s knowledge capital, and explains how think tanks in the United States are driving this change.


In the new book The Knowledge Capital of Nations: Education and the Economics of Growth (The MIT Press: 2015), Professors Eric A. Hanushek and Ludger Woessmann assess whether a nation’s knowledge capital and prosperity are related by examining the relationship between nations’ growth rates and international test scores.

The results won’t surprise partners and supporters of Atlas Network. A review of decades of economic growth measures and international test score data, the authors contend, reveals a strong link between high cognitive achievement and nations’ economic performance and prosperity.

“Even with very conservative assumptions,” Hanushek and Woessmann write, “improvements in school outcomes lead to added GDP growth that could dramatically change the future prosperity of a country.” The authors argue that “relatively modest improvements in skills can be worth multiples of a country’s current GDP,” pointing to historical examples. The Knowledge Capital of Nations highlights the importance of improving the efficiency of nations’ education systems to increase students’ and adults’ cognitive ability, thereby creating economic opportunity.

Of course, how to lift a country’s knowledge capital and cognitive achievement is a difficult puzzle to solve, and one that has vexed many political leaders through history, particularly given the political factors that shape education governance in many countries — factors that open the door to a bigger discussion.

What policies improve education that could, in turn, improve a country’s prosperity? The authors point to several promising approaches to improving cognitive achievement in schools, including improving teacher quality, expanding equity in educational attainment (such as expanded access to preschool), and strengthening school accountability and rewards to increase focus on academic achievement.

One of the promising ways to achieve the latter improvements (of strengthening school accountability and rewards to boost achievement), the authors write, is to promote choice and competition through market-based reforms. This idea — allowing parents to choose their children’s schools — was pioneered by Milton Friedman in his seminal essay on education published in 1955. Hanushek and Woessmann write about the successful experience of school choice programs in the United States, as well as the promising results of low-cost private schools in developing countries, as evidence validating the promise of market-based strategies to improve efficiency.

Expanding Parental Choice in Education and Improving Students’ Achievemen

For 25 years, free-market think tanks and policymakers in the United States have recommended the introduction of market-based education reforms that would give families a greater ability to choose their children’s schools. Among these policy reform recommendations have been the use of school vouchers or scholarships for private school tuition, tax credits for private education, and public school decentralization to allow families to have greater ability to choose among different types of public schools.

Market-based education reforms have faced strong opposition from a few types of interest groups, including teachers’ unions and school board associations, as well as left-of-center advocates who prefer a centralized approach to public school governance.  Despite political resistance, a growing number of states and cities across the United States have adopted varying forms of school choice reforms over the past quarter century. The largest growth has been in reforms to allow choice within the public education sector, including the creation of charter schools, which are independently managed public schools of choice.

Education reformers have also successfully enacted a growing number of private school choice reforms — including school vouchers, scholarships, and education tax credits — to give families the ability to pay for tuition to enroll in a private school. The private school choice programs have been the focus of a series of rigorous academic evaluations to study the effect on both participating students and the overall performance of the public school system when competition is introduced. 

The empirical evidence of private school choice programs shows that the ability to choose results in higher student test scores and graduation rates for participants, as well as improved family satisfaction with their children’s school. There is also encouraging empirical evidence that the ability to choose private or public schools results in improvement across the public school system, suggesting that institutions respond to competition by enhancing their performance and services.[1] 

Education Savings Accounts: The Way to Create True Parental Choice in Education

In 2015, the idea of enabling parents to choose the best schools for their children is becoming a reality in a revolutionary form that takes Milton Friedman’s original idea of school vouchers to a new level. 

In the United States, libertarian and conservative education reformers are increasingly focusing on the use of education savings accounts (ESAs) as a vehicle to enable choice in education by giving families direct control over their children’s share of school funding. Rather than simply providing families with a voucher to choose their children’s schools, ESAs provide families with state-funded bank accounts that can be used to purchase certain educational services, including school tuition, tutoring, course materials, online learning programs, or educational therapies. Funds that are not spent can be rolled over to future years for future expenses, or saved for postsecondary education.

ESAs are a natural refinement of the original school voucher concept that Milton Friedman proposed. Rather than simply allowing families to answer the question of “where” their child goes to school for a given school year, ESAs allow families to decide “where, when, how, from whom, and in what manner” their child learns. 

In the United States, schools spend on average more than $12,000 per year. Using an ESA model, in theory, a family could be given the ability to control upwards of $140,000 that would otherwise be spent on their children’s education from ages 6 through 18. Advocates of ESA reforms believe that it is likely that families could use those resources much more efficiently to ensure that their children learn effectively and master key subject matters, including the cognitive skills that are essential to developing a nation’s knowledge capital.

Many analysts believe that ESAs are particularly well suited to improving the efficiency of education consumption and outcomes in an age of innovative digital learning options. A growing number of education service providers are offering low-cost and high-quality instructional programs — including through technology- or Internet-based instruction. These offerings present an opportunity for parents and education consumers to acquire more learning and instruction than has been available within the traditional classroom setting. Students of all ages now have unprecedented opportunities to benefit from affordable and high-quality learning experiences.

In 2015, a student in the United States — or anywhere in the world — with an Internet connection has the opportunity to learn from a wide variety of terrific teachers, or participate in effective computer-based instructional programs. Brilliant educators are providing lessons online, for free, for any student who is willing to do the work. For example, Khan Academy, a non-profit website, offers videos that provide students with short lessons about a wide range of subjects, from elementary school through high school calculus. Many elite schools are using technology to offer personalized and challenging forms of instruction. Colleges like the Massachusetts Institute of Technology and Stanford now offer coursework online for free and even award credentials to those who pass an exam. 

For motivated students of all ages, learning is becoming a personalized journey that can happen any day, at any hour, at each student’s own pace — and not just within the walls of a traditional classroom or during the school year. Students will experience education through multiple channels, and not just from one school.

As of July 2015, in the United States, five states have enacted state-level ESA programs to give families this kind of control over their children’s school funding for elementary and secondary education. The movement was started by Arizona, which enacted the first program in 2011. Florida was the next state to enact a K–12 ESA program. In 2015, Mississippi, Tennessee, and Nevada enacted ESA programs that will begin during the upcoming school year. Nevada, which is home to Las Vegas, enacted the nation’s most expansive ESA program, making all public school students eligible to receive their share of school funding in a state-managed account if they choose to forgo enrollment in a traditional government-run school. The range of methods by which ESAs are being adopted in the United States shows that they can be tailored to serve specific populations, such as students with learning disabilities, or made available to all students.

Thousands of students have begun participating in ESA programs as a new form of experiencing schooling and education. There has not yet been an evaluation of students’ academic achievement in ESA programs, but anecdotal experience and survey data of participating parents suggests that many students are thriving in this new approach to education.[2] An analysis of how families were choosing to spend their ESA funding, by Lindsey Burke of the Heritage Foundation, revealed that approximately two thirds of participants used their ESA funding to enroll in a school, while one third used ESA funds to customize their children’s educational experience.[3] This finding suggests that ESAs are indeed offering some participating families with a new way to provide a high-quality educational experience for their children beyond simply choosing to enroll in a particular school.

Policymakers and reform experts are also developing expertise in the implementation and effective management of ESA programs, including ensuring effective state oversight of how funds are used to ensure that parents do not use funds in a fraudulent manner.  

An Example of Public Policy Think Tanks and Litigation Centers Making a Difference

The Goldwater Institute, a Phoenix-based policy think tank and litigation center, has played a key role in developing and championing this new approach to education funding and delivery in the United States. In 2014, the Goldwater Institute was one of eight think tanks to be named a finalist for Atlas Network’s Templeton Freedom Award for its work on ESAs.

Ten years ago, the Goldwater Institute published a conceptual paper, which I wrote, proposing the concept of ESAs as a more promising vehicle for promoting school choice than Friedman’s original voucher concept.[4] Several years later, the institute returned to the idea after a school voucher program was ruled unconstitutional by the Arizona Supreme Court in 2009. Dr. Matthew Ladner, one of the leading education reform experts in the United States, co-authored a research paper for the institute creating a blueprint for how the state could implement an ESA program that could be legally enacted and would likely be ruled constitutional in the courtroom.[5]

After a state-funded education savings account program was enacted in Arizona, the institute, under the leadership of legal expert Clint Bolick, led a successful defense of the program in the Arizona state courts.[6] Today, the institute’s education director, Jonathan Butcher, is a leading expert on the design and management of the ESA program, offering recommendations for Arizona and other states in how to design and implement successful ESA programs, including strengthening state management and oversight of the accounts to ensure their proper use.[7]

Many other policy research and think tank organizations in the United States are leading the effort to develop and enact marketed-based education reforms, such as education savings accounts, across the United States, including the Friedman Foundation for Educational Choice, the Foundation for Excellence in Education, the Heritage Foundation, the American Federation of Children, and many member organizations of both Atlas Network and State Policy Network. 

Looking Forward

Around the world, nations are grappling with the questions posed by Hanushek and Woessmann in The Knowledge Capitol of Nations, including how policies can be changed to lift students’ and adults’ cognitive achievement, to improve their lives and their ability to contribute to society and enjoy prosperity.    

For decades, market-based reformers have argued that the best way to ensure that all children receive a high-quality education is to give their parents or guardians the power to choose the best schools or learning environments for their children. The power to choose will create competition within the education system, and will encourage innovation and the best learning models to thrive and expand.

In 2015, the power to choose in education is taking on a whole new meaning for thousands of parents thanks to the forward-thinking state governments that have created ESAs.

It is only a matter of time before education reform advocates around the world begin looking to the ESA model as a promising strategy for improving their nations’ knowledge capital and giving all children the chance to receive a high-quality education.

Some content of this article was excerpted from an article Lips published on National Review Online: “Milton Friedman’s School Voucher Idea at 60,” June 24, 2015.

[1] For a review of the research and empirical evidence, see: Dr. Greg Forster, “A Win-Win Solution: The Empirical Evidence of School Choice,” Friedman Foundation for Educational Choice, 2013.

[2] For example, see: Jonathan Butcher and Jason Bedrick, “Schooling Satisfaction: Arizona Parents’ Opinions on Using Education Savings Accounts,” Friedman Foundation for Educational Choice, October 2013.

[3] Lindsey Burke, “The Education Debit Card: What Parents Purchase with Education Savings Accounts,” Friedman Foundation for Educational Choice, August 2013.

[4] Dan Lips, “Education Savings Accounts: A Vehicle for School Choice,” Goldwater Institute, November 15, 2005.

[5] Dr. Matthew Ladner and Nick Dranias, “Education Savings Accounts: Giving Parents Control of their Children’s Education,” Goldwater Institute, January 27, 2011. 

[6] Goldwater Institute, “Arizona Supreme Court Denies Teachers’ Union Appeal, Upholds Next Frontier Education Savings Account Program,” March 24, 2014.

[7] Butcher has written extensively on education savings accounts.  For example, see a collection of his articles at: http://goldwaterinstitute.org/en/authors/jonathan-butcher/