Susan Pendergrass on the Supply Side of ESAs

Ed Tarnowski: Welcome back to the State of Choice podcast. I’m your host, Ed Tarnowski, also known as Ed with EdChoice. Joining me today is Susan Pendergrass, who is an EdChoice Fellow and Director of Research at the ShowMe Institute.

Susan, welcome to the podcast.

Susan Pendergrass: Hi, Ed. So glad to be here.

Ed Tarnowski: Yes, thanks for coming on. I just want to give you, before we jump in, I just want to give you a chance to give a more in-depth introduction of yourself and some of the work that you do.

Susan Pendergrass: Sure. Well, I’ve been doing work for Ed Choice for 20 years. Some form of Ed Choice, when you guys used to be the Friedman Foundation and the Foundation for Educational Choice.

So I have been doing work around school choice issues since the early 2000s, when really it was not very widespread at all, but it was still Milton Friedman’s goal to make it happen. Since then, I went to the Department of Education during the George Bush administration and was a senior policy advisor there. And then I’ve been in the nonprofit space at the national level.

Well, I should say after I was a political Department of Education, I went over and worked at the National Center for Education Statistics for a while. And then to a couple of nonprofits, the National Alliance of Public Charter Schools. And now I’m doing state level work in Missouri, which is really fascinating too.

So I’ve sort of been all over the map in terms of policy areas around school choice and fiscal policy for education.

Ed Tarnowski: Excellent. Well, let’s jump right in. What we’re going to be talking about today, and I am so excited about this because one of the things I’ve been touting for years and talking about for years is how excited I am about the data that we’re going to see once universal choice has been in place in several states for many years.

And we’re finally getting that for the first time. And my first question for you is, as we’ve talked about a show before, Milton Friedman’s vision was yes, of course, making sure kids can get choice on the spot. So that initial choice, but what the larger picture is moving away from a monopolistic system toward marketplace of education.

And for the first time since seeing his vision realized in Arizona, we have some really strong data on what the marketplace of education is looking like on the supply side. So my first question for you is what are we seeing in Arizona and some other states with universal choice?

Susan Pendergrass: Yeah, I think you’re exactly right that we wouldn’t really see anything very exciting until we had universal choice because many states, including Arizona, have had programs where certain groups of kids, either students with disabilities or low-income students, can get a scholarship or a voucher and use it to attend a private school or to homeschool. Those programs have been in existence, but what we haven’t really been able to see much of is what the supply side does in those situations where, you know, if it’s a limited program, it’s going to serve limited groups of students, you might not want to open a private school to serve those kids, right? Like as a vendor or a school, you might not want to enter into that marketplace because it’s kind of, you know, piecemeal and you can’t rely that there’ll be enough students for you.

But when a program goes universal, like Arizona’s did in basically 2022, then every kid in the state can get a scholarship and they don’t have to be a certain type of student. And so now what that does is, and I will say I’ve been doing a couple papers for EdChoice on this and we are in very early days, like I’m trying to get a peek under the tent to see what might be coming, but, you know, we have some very early information, which is to say when this blows open and 100,000 kids use it, or in the years I was looking at, maybe 80,000 kids use it, do we then see that the number of private schools increases?

Do we see that the number of, I say vendors, but like, you know, tutors and the number of extracurriculars and curriculum companies, are those growing? Because now they have like a guaranteed marketplace where they can say there’s 80,000 kids and they’re each getting about $8,000. That feels like a market I’m willing to take a risk and go into.

Florida is the same thing where it’s like every student and now we have hundreds of thousands of kids. So I think it is, I think you’re exactly right. It’s a very exciting time because we now have a couple of states where we can get some information about, number one, what parents are doing, like with their $8,000, like how are they, you know, they’re the demand side, so they’re going to put pressure on the supply side and vice versa.

Like how are the parents influencing through their demand the supply side? And then how is the supply side reacting? You know, Milton Friedman had faith in this process.

And lots of times in states like where I work, Missouri, you know, you bring up a universal scholarship, like they’re not even really private schools in rural areas. And I’m like, yes, because they come after. The first thing that happens is you unleash demand by letting every child participate, and then the supply responds.

And in so many cases, folks think that the supply side is fixed, it’s given. And it’s like, no, no, that what we’re seeing now is what’s happening on the supply side in Arizona, in states like Florida, probably North Carolina, probably Arkansas. We’re going to see you know, how is that changing?

And I believe that it’s changing quickly, and it’s changing in really interesting ways.

Ed Tarnowski: Right. And one of the reasons I love that Arizona is the study is because Arizona has a lot of rural areas. And so let’s, I want to touch upon that question, because to your point, this often is a concern that comes up is because there are often, there does tend to be fewer private schools, although more than people think in rural communities.

But that’s a concern that gets raised a lot. And it’s something that is worth, certainly worth addressing. So can we talk about what the supply side is looking like in rural Arizona or in rural schools and areas that have in states with universal choice?

Susan Pendergrass: Yeah, so it’s kind of hard to say, because the data I looked at didn’t necessarily break it out that way. But it did have for all of the vendors that parents, so you know, in Arizona, like in so many states, parents get a scholarship of seven or $8,000, they get a digital wallet, and that money is deposited into that account. In Arizona, there’s a company called ClassWallet that administers that.

So ClassWallet manages their digital wallet, the money goes in, the parent goes in to the ClassWallet Arizona marketplace and says, I would like to spend X dollars at this private school, or I need to pay for my uniforms at the private school. So please pay this private school this amount of money for uniforms out of my digital wallet. So parents are really managing this thing.

And they’re going in and there’s thousands, there’s like 6000 vendors now in the Arizona ClassWallet marketplace, maybe even more, it could be overwhelming at this point, I’m not sure. But I was able to get a data set that had all of those transactions in it. So you could see what parents were doing.

And for the vendors, there was a city and state too. And many, many, many of the vendors are out of state. So that to your point about rural, parents are accessing tutors that are out of state.

I think anecdotally, I heard that there’s a good, let’s think about this hypothetically, then there could be a great tutor for children with dyslexia in Ohio. And when word of mouth gets around the parents like I want that tutor, you know, and I can use my Arizona ClassWallet dollars to access that tutor in Ohio. Similarly, parents are accessing lots of online resources like online coding camps, camps, you know what I mean?

Or online subscriptions, or even paraprofessionals in other states. And that is just opening up like if you used to have to be able to drive your car to where the tutor is very limited, or to where the extracurricular, you know, it’s very limited what you can do. But if you can access a coding site in California, then all of a sudden parents have like, almost unlimited.

Now, each of the vendors has to become part of the they have to be certified to be in the ClassWallet system. And they have hoops they have to jump through. But I’ve known of some parents are like, wow, I found this really cool guy.

He does woodworking. I want him to be an ESA vendor so my child can go there. So parents are influencing the marketplace.

And now they have these thousands of vendors to choose from, including some of the, you know, Kumon Math, Mathnasium, Sylvan Learning Center, some that that you’re that you might be familiar with. But parents are really what’s driving this explosion, I think, in the numbers of vendors, because it’s reflecting what they want for their kids and for their education.

Ed Tarnowski: Right. And on that point, I think like, as we as we’ve talked about, we’re moving away from a monopolistic system for the first time. So we do see I love that you mentioned how parents are influencing the system in many ways for the first time in ways that we haven’t seen before, because now that the money truly does follow the child, that’s creating all new types of opportunities.

And in a very American fashion, we’re seeing entrepreneurs, we’re seeing teachers rise to the occasion and coming up with new innovative schooling models. Can we talk a little bit about and expand upon what other model, what different models are we seeing? Because as you’ve said in the report, we do see that while the traditional practical tuition does remain dominant, we are seeing a steady decline in that.

And we’re seeing an increase in parents taking that money elsewhere and truly using that flexibility that ESAs provide us.

Susan Pendergrass: Yeah, there’s definitely homeschool co-ops in the transactions. There’s micro schools, there’s like a large micro school company called Brenda, and Brenda is in there quite a bit. So it’s a little hard to see how the micro schools are harder to see in these data.

So one thing that came out of this report is like with our first two years of data, we have work to do on the data collection side. And I think ClassWallet understands that they are moving towards an AI based system of categorizing these expenses. Right now, parents go in and pick the category and a lot of them are, I had to clean a lot of data, but you’re definitely seeing homeschool co-ops, micro schools.

And I think it reflects what EdChoice’s polling has shown. You guys do polling every month, which has been so great since the COVID pandemic. And it seems to be, believe it or not, that parents want their kids home a couple of days and in schools a couple of days.

They don’t necessarily want, like 40% of parents don’t want either five days of in school or five days out of school. They want a blend, like many of us are now doing in our jobs. And we were seeing that reflected with more of a hybrid model where parents are getting together in a school setting for a couple of days a week, and then doing a version of homeschooling for the rest of the week.

Ed Tarnowski: That totally makes sense. And that’s really exciting. And it’s again, I think it touches on your point of something that you mentioned in one of your reports as well, we are, it looks like we’re seeing a slow shift away from a common school experience and toward a more individualized one.

Would you mind expanding on that a little bit?

Susan Pendergrass: Yeah. I had a conversation with your CEO, Rob Enlow, about this. But, you know, so I just kind of wonder, because when I look at the extracurriculars, number one, parents are certainly accessing extracurricular activities.

And the number of extracurricular vendors across all categories has expanded year over year, over like three years. But what I do see is like when parents, I’m making really broad brush conclusions here, but there’s a lot of martial arts, and a lot of dance, and not so much team sports. I don’t know, maybe they’re still playing team sports, and they’re not using ESA dollars for it.

But parents are accessing a lot of more individualized experience, a lot of horseback riding, a lot of swimming. Swimming is very interesting to me. And I haven’t dug it enough.

But there’s a couple of vendors in Arizona in multiple cities called like Aquatots, or these swim schools. I think they’re in strip malls. And parents are definitely taking the opportunity to use swimming as an extracurricular.

When you look at music, there’s a lot of guitar, voice, piano. And I have said that, you know, when my kids were in middle school, and they picked band or orchestra, and if they picked orchestra, you know, they might come home with a cello, or bass, or flute. They probably never learned to play any of them.

If they pick band, they come home with a trombone, right? You know, it’s like, there’s this weird shared experience of like middle school orchestra that I might get lost in this. I don’t know.

But you can see that parents are taking advantage of, I imagine, what their kids are really interested in, right? So if they really want to learn piano, and dig in, or voice, they’re getting voice lessons. A lot of also like gardening and culinary, cooking things, which I think is interesting.

And I don’t know which direction it’s going. There’s these garden tower things that I can see why gardening is such a great science topic, right? So they’re taking advantage of those types of extracurriculars, and even culinary, and cakes, and things like that, because that is what kids are interested in.

I mean, it kind of reflects what’s happening in society. So parents are able to do these very sort of specialized, tailored curriculums, which I think is really cool. I also saw a lot of subscriptions, which I didn’t expect to see.

I didn’t like a HelloFresh type, I don’t know if I should name a vendor, like a national company. But there’s something called history in a box, where once a month, you get a box and it has might be a topic like, I don’t know, the American Revolution, and everything’s connected to that thing. Yeah, so they come once a month.

But there’s lots and lots and lots of subscriptions, just like there’s growing subscriptions around meal prep, there’s lots of subscriptions available for this program. And I also saw just as a side note that like, when I went to the websites for these things, they’ll have a badge at the web on their homepage that says ESA approved. You know what I mean?

So they know that they’re reaching ESA parents, and then ESA parents are able to do this. And one takeaway that I had, my kids are grown is like, how great this would be, if I had kids to like put together these really tailored experiences, and let them really dig into the things that they are really interested in, and maybe not spend time on things that the, you know, sort of forced to do in the more common school experience, but they may never learn square dancing. You have to take the hit, right?

Ed Tarnowski: Well, I will say my parents were lucky, I brought home a clarinet, and I did seven years, so they didn’t have any trouble. Although as much as I love the sound of the trombone, we didn’t have to lug that around, which was which was nice.

Susan Pendergrass: But like I said, year over year, there’s more music vendors, there’s more art vendors, there’s more theater vendors, there’s a lot of theater, there’s a lot of, for physical education, like I said, a lot of different forms of martial arts, some things that are like just, what’s the word, like physical fitness, but like physical fitness, you know, which is great. And then some team sports, for sure. And then a lot of equestrian in Arizona, you know, so a lot of equestrian and some of the equestrian is because Arizona did initially serve exclusively students with disabilities in this program.

And there’s a lot of therapeutic horseback riding, but yoga, well-being, I mean, just so many things. I think if you think about 80,000 kids in, you know, probably 50,000-60,000 parents in there, what is the limit on what parents can come up with, right, to craft their child’s education?

Ed Tarnowski: Right. And I think one of the reasons this is so exciting, and why I love to see so many different options and this ability to have an individualized education is because, I feel like, I mean, I went to a district school. It was a decent school.

I was lucky. But I think one of the problems posed by just having such a common model everywhere is, I think often kids are pressured into picking their path very early in life, taking out massive loans, and often undecided on that path. And I think one of the most powerful things about an individualized education where you can do things like learn about cooking and culinary arts or different music options is that kids can get more experimentation in what they’re passionate about, what they’re good at, what they love.

And I think that builds an opportunity, a new opportunity for career building and understanding what they might want to do next.

Susan Pendergrass: And what’s great, too, is if a parent just, you know, the child wants to learn Spanish and they find a Spanish teacher or a language school and sign them up, and they’re not really getting it, and they’re not doing very well like so many people do in public high schools, you can stop. You can switch gears. You can go to a different language school.

You can try French. You know what I mean? Like, if it’s not working, you don’t have to just slog through a whole semester or a whole year of something that you decided you really aren’t getting or you don’t like.

And, you know, yeah, I think it’s really interesting to me because, yes, there’s a common school experience, and that’s what a lot of people talk about the traditional public school system as imparting this unified experience and creating a civilized society where we’re, you know, all like doing all those things, but we’re not doing it well, right? And I can speak to Missouri. Our test scores are, you know, less than half of the kids are on grade level.

So I just firmly believe that there is not going to be a situation where more than half the parents would just accept the fact that they got scholarship money, did the best they could to put a program together, and their kids just never learned to read. I just don’t think that will happen, right? The accountability is so different than when you have a state saying, well, you know, look, 42% of our kids can read on grade level.

We’ll try harder next year. I just don’t think that will ever happen in these situations, and that’s where I think Milton Friedman got it right because, you know, it’s not perfect accountability, but parents saying like, hey, I signed my kid up with this language school. They did a terrible job.

Well, that fender’s not going to last. They’re going to close, right? Or a school even that opens and parents sign their kids up and, you know, they’re not being challenged.

That school’s going to close, and it should be a dynamic marketplace, but we have failing schools that are open for decades and remain failing for decades, so that’s one really great thing that I think will happen. I would love to do a follow-up study to see the vendors that dropped off or stopped using, you know, to see what was going on there.

Ed Tarnowski: Well, it’s the glory of choice. I mean, you get to test these things out and see what works, what doesn’t work, but in the district school system, if they’re underperforming, they just usually throw more cash at it, and we haven’t seen that to be a very effective way at improving test scores, considering the stagnation we’ve seen over the last decades, and I love your point on language immersion. I have friends in very different parts of the country who have been able to, when they were growing up, be put through language immersion programs, and they speak fluent to this day, but you see across in most high schools, there is a language requirement, but yet we don’t see a spread level of people being bilingual, so it goes to show you, like, if there are clearly programs out there that are more effective than just, like, what’s necessarily happening school to school, so the opportunity to put your kids in a language immersion program, because I wish I grew up speaking another language.

Now it’s so much harder. I’m trying to learn another language now, but it’s much more difficult, so I wish I had had that opportunity, and I’m so glad that so many kids will have that opportunity with ESAs.

Susan Pendergrass: Because the science is not new on that.

Ed Tarnowski: Right.

Susan Pendergrass: It’s been known for decades that you have to learn your first language by the time you’re four, and your second fluent language by the time you’re ten, basically. That has been known for decades. People use the example of Henry Kissinger, and his brother came over, and he was 13, his brother was nine, and his brother never had an accent.

So you have this second language acquisition period, and it’s really before 10, 11, 12, and parents get it, and the parents can say, great, I’m going to sign my six-year-old up for Mandarin. But in a school system, in a large bureaucratic system, they’re like, well, no, we do language in high school. It’s like, that’s the wrong time to do it, and they’re not going to learn it.

You should do it in the earliest grades, and it’s too big, and they can’t shift it. So programs like this allow you to respond, allow parents to take what they know, or take what the science says, and immediately put it in.

Ed Tarnowski: Absolutely. I know, this is so exciting, and again, shows the dynamicism of a marketplace of education. And I’ll leave you on one last question.

So you mentioned that in your report that private schools are on the decline in much of the country, but we’re not seeing that in states with robust choice. And this kind of reminds me of, as you mentioned, EdChoice does monthly polling in our public opinion tracker, and one of the things we see is there is a disconnect between the schooling models that people want their kids in versus what the schooling models they are in, meaning a lot of people will be satisfied with their local district school, which is fine. But what we’re seeing is more parents want the opportunity to put their kids in private school or to homeschool than what we’re seeing in the actual data of how many kids, the breakdown of where kids actually are being educated.

So I wonder if this is related, or if this has something to do with why we’re seeing an increase in private schools in states with robust choice versus states that don’t.

Susan Pendergrass: I mean, it has to, right? Now, I will say, again, the data are kind of funky because we don’t always even know the number of private schools. The federal government collects something called the private school survey, and not every private school responds.

So we don’t have 100%. We don’t really know. And I would say from these two papers, the definition of private school is changing quickly because what parents see as a school, what the government defines as a school are becoming two different things.

However, you can say, looking at this kind of messy data with all of that going on, is that states like Arizona and Florida, you can say, even with the sort of error around the numbers, there definitely has been a growth in the number of schools. And again, if you’re going to open a private school, you need to know, and you want to serve scholarship students, the environment is that fewer and fewer kids are going to private schools. And you certainly see this in Catholic schools.

So if you want to open a school and serve kids through this ESA program and be like a Catholic urban Catholic school, you need to know that the state’s going to make this universal, they’re going to keep the funding, and that you can rely upon the fact that these kids will have scholarships. And it wasn’t until Arizona did that and Florida did that, this is a policy in our state, kids will get these scholarships, then I you would be willing to open a school or to rely on scholarship students or want to serve scholarship students. Other states that you can clearly see the number of private schools going down are like New York and California that, you know, have not done scholarship programs.

So you can see overall, nationally, the number of private schools is down. Private school enrollment had been going down through like the 80s and 90s. It has been slowly declining.

You see a little uptick, you guys are up to like 1.2 million, right, or 1.3 million kids using scholarships now. And that’s going to impact it. I think, as we see more of these scholarship programs in place, we are going to see, I think, a growth in the number of private schools.

And certainly since the pandemic, parents just sort of ditched their public school, they closed, they didn’t reopen, they’re like, oh, rather homeschool, I will start a school. You know what I mean? So parents were like, forget it.

So that’s a place where the traditional public schools took a hit. But yes, you can see in the states that have really embraced choice, the number of private schools is increasing, which is what you would expect.

Ed Tarnowski: Oh, that’s so informative. And for those looking to dive deeper into Susan’s reports, you can check it out on the Supply Side of ESAs and Beyond Tuition, the two reports on EdChoice’s website. Susan, is there anything else you want to leave our listeners with today?

And if not, you can jump right into where they can find you and learn more about your work.

Susan Pendergrass: Well, the one thing I will say is that for folks who don’t like how this is going, I don’t think parents are ever going to want less choice than they have now. I think choice is only going to grow. I don’t think humans go from more choice to less choice.

So I would just say the horse has kind of left the barn on this. And I think parents choosing how their children are educated is only going to become the default in some amount of time. You can find me.

I’m at the Show Me Institute. I’m the Director of Research. And I’m at showmeinstitute.org.

And please email me with any questions that you might have about either of these reports.

Ed Tarnowski: Susan, we continue to appreciate your work. It is absolutely invaluable in the movement. And thank you for joining the show today.

Susan Pendergrass: Thanks so much, Ed. I appreciate it.

Ed Tarnowski: For more information about EdChoice and our research, please feel free to visit edchoice.org and follow me on X at Ed Tarnowski. I’m your host, Ed Tarnowski, also known as Ed with EdChoice. We’ll see you next time.