Breaking Down “The Tax-Credit Scholarship Audit”

In 2014, we calculated the cumulative savings generated by America’s K–12 school voucher programs over two decades—$1.7 billion. This year, we continued that study by doing the same for seven states’ tax-credit scholarship programs, which cover 93 percent of total scholarships awarded to date.

These types of school choice programs differ from school vouchers in how they’re funded, however. Tax-credit scholarships allow individuals and businesses to reduce their state tax liability by making a private donation to a nonprofit organization that provides students scholarships to attend private schools of their choice.

In The Tax-Credit Scholarship Audit, EdChoice Director of Fiscal Policy and Analysis Dr. Martin Lueken updates previous work examining the fiscal effects of private school choice programs. Flip through this slide show to learn how much tax-credit scholarship programs have cost or saved state governments, school districts and taxpayers over the past 17 years.




What You’ll Learn

Since the creation of the first modern school choice program in 1990, 30 empirical studies have examined the fiscal impact of school choice on taxpayers. Of those studies, 27 find school choice programs save money. Three find the programs they studied were revenue neutral. No empirical study ever conducted has ever shown negative fiscal effects.

But still, that wealth of evidence hasn’t stopped school choice opponents from claiming otherwise. They say, simplistically, that school choice drains money from the public school system.

But that rhetoric obscures an important fact: A public school is also relieved of costs for any student switching to private school.

By not acknowledging such variable cost savings, opponents implicitly argue that all public school costs are fixed. By that logic: If there were no savings when a public school’s enrollment declines, then when public schools take on more students, their costs wouldn’t increase either.

Of course, that is not the case.

The truth is, the reduction in a school district’s funds when kids leave using school choice programs is usually identical to the reduction in that school district’s funds when kids move from one public school district to another. Also, when school choice students leave their district, that district keeps all federal and local funds. Colleges and universities do not keep any funds—public or private—when students transfer. They lose Pell grants, tuition revenue and state appropriations when students leave.

You heard that right. Public K–12 education is the only enterprise in American society where service providers keep a portion of people’s money even after those people have determined they do not want to be customers.

Whether school choice opponents want to admit it or not, school choice programs save money.

But how much?

For a tax-credit scholarship program to result in savings, this must be true:


(Districts’ Variable Spending Per Student) > (Districts’ Tax Revenue Lost Per Scholarship Recipient) –> Net Savings Per Student


There are two other factors we took into account, which are explained in more detail in the full report.

  • the proportion of scholarship students who switched (or were likely to switch) out of public schools vs. those who already were in (or were likely to attend) private schools even without the assistance of the scholarship
  • some programs allow students to receive multiple scholarships

To determine a tax-credit scholarship program’s net fiscal impact, use the following equation:

Net Fiscal Impact = (p*C*E) – (t*E)


p = percentage of scholarships given to public-to-private school switchers

C = avg. variable cost to educate a student in public school

E = total number of program participants

t = avg. amount of tax credits awarded per program participant


The expression (p*C*E) represents the total savings to the state and districts because students left public schools, and (t*E) represents the total cost to operate the program.

We did the math.

Our low-end estimate—assuming 25 percent of scholarships went to multi-scholarship students and a fixed 60 percent of recipients were public-to-private switchers—reveals students have saved states and districts $1.7 billion, or $1,650 per student, by taking their educational needs to private schools using tax-credit scholarships. And that is the low end.

The high-end estimate—assuming 10 percent of scholarships went to multi-scholarship students and state-specific rates for public-to-private switchers—shows tax-credit scholarships have saved $3.4 billion, or $3,001 per student.

These savings are most commonly captured by either the public school districts or the state treasury, which can use them to do any number of things:

  • reinvest in public schools,
  • invest in other priorities such as law enforcement or healthcare,
  • lower total state spending,
  • build reserves, and/or
  • lower taxes

But what actually happens to those savings is anyone’s guess. State governments don’t do much, if anything, to track where those savings go.


For more details and individual program breakdowns in the full report, visit The Tax-Credit Scholarship Audit.

To contact the author, Director of Fiscal Policy and Analysis Dr. Martin F. Lueken, email