The Unintended Consequences of ESAs – Inflated Costs for All, Fewer Choices for All – Part 3

This is part three of a five-part series. Read Part 1 and Part 2.

    3. Would ESA funds help low-income families afford homeschooling?

No. The barrier to homeschooling is usually that either both parents work, or one parent in a single-parent household must work. ESA funds are not going to provide a second salary.

Although it seems tempting at first, ESA funds will not help low-income families in the long term. As explained before, in Arizona ESA funds have already been shown to help families in high performing schools districts the most. And, as explained, for students with serious special needs, an IEP is already available as a method to cover the full cost of private school.

The rest of the issues are more complicated because the worst effects will take at least few years, but similar situations have had disastrous consequences for low-income families in the past. Increasing government funding in education is where the law of unintended consequences has reared its head before, and it will rear its head in the future.

It’s important to understand that an ESA probably won’t cover all the expenses you currently choose to spend on homeschooling. You’ll still need spend some of your “own money” on items that are not approved. For example, a laptop would not be approved in Florida or Nevada (one low-income family is reported to have received permission to buy a laptop for educational purposes in New Hampshire).[1] Anything deemed “too religious” or “too intolerant” may be questionable. In some states, you’d be required to purchase the item first, then ask for reimbursement. What if a purchase was not approved and you could no longer return the item? The consequences could be worse in a state that allows you to make the purchase from an ESA debit card – what if you bought an item and believed it qualified (such as a laptop), but you were audited and had to pay back the money? What about charges of fraud or misuse of government funds? 

Let’s assume for a moment that everything will be ok with making your purchases. You’ll be spending the “free money” only on things that the government approves, so there will be many people who will be happy to sell you more of those specially approved items. We’ll call those sellers “publishers” just to make it easy, but it would expand far beyond what we now think of as publishers, such as online courses. The publishers who are successful in selling you these items are probably going to be pretty smart, and they’re in business to make money. I don’t fault them; it’s the American way, but if you’ve got $5000 to spend, they’re going to want you to spend all of that $5000 with them.

These publishers also realize that almost everybody tends to be pretty generous when they spend “free money” – a lot more generous than they are when they spend their own money. The first year, the publishers will take a look at what they already offer for homeschoolers and realize that they’ve been selling packages for a range of $250-$600. Maybe some competitors sell packages for $400-$900. An “expensive” online homeschool course may be $200. But now, all the publishers know that you’ve got $5000 to spend. That online homeschool course can increase in price now that more people will have more money to spend on it.

The publishers are smart, and they’re great at getting you to spend your money, but they know that experienced homeschoolers who have been spending $900 aren’t going to swallow a price increase to $5000. They’ll get together and offer a great package for $2000. It will include more than their old packages, but not that much more, and because you’re spending “free money,” you won’t look as closely at the prices, anyway. The publishers will also have increased costs to cover because of the “red tape” that will inevitably come with getting curriculum and courses onto the “approved” list, and price increases will cover those costs. Some of the publishers (especially those who do not currently sell much to the homeschooling market) will want every dollar of your “free money,” and they’ll offer a $5000 package the very first year. They might include online tutors, online classes, and so on, to justify the price.

Next year many publishers will offer the $2000 package (price increased to $2100 because of increased costs, of course), but also a $2600 package with a few more things thrown in. You’ll accept. After a couple of years all of the publishers will offer a $5000 package, and start lobbying for increases in ESAs. They’ll inevitably increase, and so will the prices of the packages. When the ESA is going to increase, publishers will raise their package prices to match every increase. During the years that ESAs do not increase, publishers will advertise that they are keeping prices the same or only increasing them slightly, but they will restructure packages under the guise of “improvement” to hide what they took out to cut costs and increase profit. Publishers are in business to make money, and if they don’t make money, they won’t stay in business. The prices will inflate.

Don’t doubt that this type of price inflation will happen – it’s already happened in higher education with Pell Grants and increased student loans. Back in 1987, then-Secretary of Education William Bennett put forth what is now known as the “Bennett Hypothesis,” arguing that “… increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”[2]

Plainly, Bennett was predicting that as the “free money” poured into higher education, schools would raise their tuition to use up the available money. Students who had “free money” to pay for tuition wouldn’t balk or protest the cost increases like they would have if they’d needed to pay cash, as they had in the past.

That is exactly what happened. In 2015 a study confirmed, “We find that institutions that were most exposed to these maximums ahead of the policy changes experienced disproportionate tuition increases around these changes, with effects of changes in institution-specific program maximums of Pell Grant, subsidized loan, and unsubsidized loan of about 40, 60, and 15 cents on the dollar, respectively.”[3]

The increases in “free money” didn’t help lower-income families have more access to a college degree, either.[4] The authors of Dollars, Cents, and Nonsense: The Harmful Effects of Federal Student Aid (Richard Vedder, Christopher Denhart, and Joseph Hartge of The Center For College Affordability and Productivity), summarize, “After reviewing the various federal programs that evolved to assist college students, we conclude that they have largely failed. For example, the proportion of lower-income recent college graduates is lower than when these programs were in their infancy. The programs are complex and Byzantine, leading to forms such as the FAFSA (Free Application for Federal Student Aid), whose very complexity has reduced participation by low-income students. The law of unintended consequences has reared its ugly head.”

The law of unintended consequences is here, ready to rear its ugly head once again, this time with ESA funds. The law of unintended consequences leads us to the next lie, because as with financial aid, the consequences with ESA funds will not be limited to finances….

[1] http://www.cato.org/publications/policy-analysis/taking-credit-education-how-fund-education-savings-accounts-through-tax#cite-4

[2] Bennett, William J. “Our Greedy Colleges.” Nytimes.com. The New York Times Company, February 18, 1987. Web. October 4, 2016.

[3] Lucca, David O., Taylor Nadauld, and Karen Shen. “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs.” Newyorkfed.org. Federal Reserve Bank of New York, Mar. 2016. Web. October. 4, 2016

[4] Vedder, Richard; Denhart, Christopher; Hartge, Joseph (June 2014), Dollars, Cents, and Nonsense: The Harmful Effects of Federal Student Aid, Center for College Affordability and Productivity, Web. October 4, 2016

Lisa Yankey is a happy homeschooling mom of three, but she never expected to homeschool. Teaching runs in her blood – she is a former public school teacher, and her mother, father, and brother are all former public school teachers. During her childhood and as a teacher herself, she recognized many issues in public school. She went to law school at night in a long-term plan to help improve public schools. She used to believe that every child could receive a good and appropriate education from public school. She realized the error of this belief when she watched her own child suffering in public school. She began homeschooling shortly after her oldest child had a disastrous start to public school first grade, and she has never looked back.

She kept her career as a part-time attorney and works for herself as a sole practitioner, with a practice area in immigration law. She is known particularly for her representation of victims of domestic abuse. She continues teaching adults as a speaker on immigration law at continuing legal education events for fellow lawyers. Lisa resides in Noblesville, Indiana (Hamilton County). with her husband, three children, two dogs, and a cat.