Scholarship Credit Does Indeed Assist Neediest Students

Posted on April 15, 2002 | Type: In the News
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After reading his obituary in a newspaper, Mark Twain laughed off the erroneous report stating, "Rumors of my death have been greatly exaggerated." Like Mark Twain's death, rumors of the demise of Arizona's education tax credit are greatly exaggerated. Despite headlines that "School tax credits fail poor," this essential program gives thousands of needy students access to first-rate educations.

Glen Wilson of Arizona State University argues that Arizona's tax credits for private education scholarships and for funding extracurricular activities at public schools "are expensive and inefficient at reaching low-income students." The credits should be amended or even repealed, he concludes.

But Wilson lumps together two distinctly different credits. The tax credit for donations to public schools is indeed of questionable value, but the scholarship tax credit is another matter entirely.

For a struggling student in a dysfunctional school, a scholarship to attend a private school is a life preserver, not a luxury. An estimated 19,000 students have received scholarships since 1998, most on the basis of need. Wilson is on target about the credit for extracurriculars, but ending both tax credits would throw the baby out with the bathwater.

The scholarship program gives Arizonans tax credits up to $500 for donations to more than 30 non-profit tuition scholarship organizations, which pool the contributions and match scholarships with students in need.

Scholarship awards may be based on academic talent, special needs, or other criteria, but Cato Institute interviews with Arizona scholarship providers find that more than 80 percent of scholarship awards are based on financial need. No scholars, including Wilson, offer evidence that the 80 percent figure is erroneous.

This emphasis on need makes sense: charitable scholarship organizations have little interest in directing scarce funds to wealthier students.

If so, why does Wilson conclude that scholarships do "relatively little to help poor students" To be sure, both Wilson and the Cato Institute estimate that roughly 75 percent of scholarship awards went to students already enrolled in private schools; 25 percent helped parents transfer their children out of public schools into private ones. The implication is that any student enrolled in a private school must already be rich.

But many families struggle financially to send their children to private schools, and should not be punished for their sacrifice by making them ineligible for needs-based scholarships. Some scholarship organizations give first priority to students at risk of dropping out for financial reasons, using remaining funds to help new families afford tuition. Others, such as the Arizona School Choice Trust, one of the largest scholarship organizations in the state, makes sure that for every student currently enrolled, its scholarships help two students transfer.

Wilson also calls the credit "expensive," but he tallies only costs and ignores savings. The average scholarship is worth about $1,000, but educating a student in the public schools costs roughly $5,000. That means every student who uses a scholarship to transfer out of public school saves the state about $4,000. Current projections show the scholarship credit has been revenue neutral and could eventually save taxpayers $100 million annually.

Arizona's success inspired Governor Jeb Bush (Fla.) and former Governor Tom Ridge (Penn.) to implement similar reforms, and President Bush's new budget includes a similar credit.

Wilson is right that thousands more students need help. That's why, in a new Goldwater Institute study, I propose expanding the credit to businesses. That plan could raise an additional 22,000 scholarships worth $2,000 each for poor students in public schools, at an annual savings of $53 million. Those savings could be rolled back into the program, and used to create additional scholarships and help even more students.

Yes, the current scholarship program occasionally assists middle-class children, but it is primarily a lifeline for lower-income students. It must be preserved or thousands of students may be lost.

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