Tax credit scholarship programs utilize voluntary, private contributions – encouraged through tax credits – to fund scholarships for children to attend the private school of their choice.
When a public school is not meeting a child’s needs, parents can opt for private school. However, the costs associated with private school makes that unattainable for many families. Nationally, approximately 9 percent of all students attend private school, compared to about 84 percent whom attend public school. But when families are asked which type of school they would select in order to obtain the best education for their child, the numbers change dramatically: 41 percent would choose private school and 36 percent would remain in public school.[i]
Tax credit scholarships help parents afford private school tuition if they believe a private school would be the best fit for their child.
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Nonprofit organizations who grant scholarships are funded by contributions from donors who receive a tax deduction, as they would for contributing to any 501(c)(3) tax exempt nonprofit. Legislation creating a tax credit scholarship program would grant a state tax credit to donors who contribute to scholarship granting nonprofit organizations. Because a tax credit is more beneficial to donors than a tax deduction, this program would encourage new support for scholarship granting organizations. These scholarship granting organizations would work with parents and schools to find the best educational environment for each child.
When structured correctly, these programs are a cost savings for taxpayers because the tax credit given is less than the per pupil amount the state would spend on a student in a traditional public school. But the true benefit of this program is that parents can choose the best school to meet the needs of their child.
The first tax credit scholarship program was created in Arizona in 1997. Currently, 16 states offer 20 different tax credit scholarship programs serving more than 200,000 students.
- The state chooses the amount it reimburses donors. There are a variety of tax credit limitations, including the size of the tax credit and a cap on the size of that credit in relation to the donor’s total tax liability. Limitations will impact the size and availability of the scholarship. Naturally, the lower the limit, the smaller the scholarship for each child. A higher limit, such as dollar for dollar, will stimulate more contributions. This will create a larger scholarship benefiting the maximum number of children.
- The state can choose which students are eligible to receive scholarships. While some states allow all students to receive the scholarships, others limit them to only students currently enrolled in public school, low-income families, students attending failing schools, students with special needs, etc.
- The amount of the scholarship that a student receives can vary from a capped dollar amount put in place by the state to the full cost of tuition.
In general, restrictive laws place unnecessary burdens on families, donors, and private schools that hamper the growth of these programs and limit their full benefit to the families who need them the most.