Over the summer, Edunomics Lab predicted that, once up and at scale, the federal tax credit scholarship (FSTC) could generate some $1,000 per public school student. However, now that Treasury has released its long-awaited draft regulations, we’re downgrading that prediction.
It all comes down to an onerous requirement that public school participants prove they are not super rich.
You see, the law was written such that nearly every school-aged student is eligible. The sole exclusion applies to families earning more than triple the average income in their county (a.k.a. super rich). (Apparently the law’s drafters worried about the optics if people like Elon Musk got scholarships for their kids.)
In practice this excludes kids from families making over $400,000 in places like D.C., Seattle, and Boston, or above $300,000 in cities like Chicago, San Diego, and Minneapolis. Because many of these high-income families already opt for private education, we estimate that over 97 percent of all public school students qualify for the program.
With near-universal eligibility, we anticipated that districts could use FSTC to raise revenue on behalf of all their students. We suggested that school districts could set a fee for all students for access to a “bundle of enhanced services” that might include access to field trips, enrichment programs, and mental health supports. The district would then go to the scholarship granting organization (SGO) to cover that fee for their entire student body (save for the handful of super rich outliers).
That model is made much more difficult by one onerous regulation: Treasury put the burden on the 97 percent to prove they are not part of the 3 percent. Students must produce W-2s, pay slips, alimony records, or similar documents all to cover the fee for a field trip, flute rental, or Chromebook. That’s a stretch. Families can log on to verification apps, but those start at around $50 a pop. Even in a case where parents sign off to authorize a match with tax records in cooperating states, there would still be swaths of students who need to be independently verified.
Treasury knows it’s a burden and created narrow “safe harbors” for some of the neediest students. Foster students and those enrolled in SNAP or other welfare programs needn’t document their income. Still, of the roughly 48 million public school students who qualify, at best only one in three falls into a safe harbor category. That leaves some 31 million kids who must clear a heavy administrative hurdle just to access a program that they are legally entitled to use.
How much of a burden is documenting income? Just ask high school seniors who completed the legacy FAFSA forms. With FAFSA, at least the promise of massive college tuition aid kept motivation higher. Under proposed FSTC rules, we’ll have fourth graders nagging their parents to unearth tax documents every year just to join the robotics club.
Beyond the administrative friction, exchanging this volume of personal financial data introduces serious risks of data leaks.
There is a better option. We advised Treasury to accept family attestation of income eligibility for scholarships or fees up to $3,000. For the vast majority of public school students, this would simply mean signing a form attesting that your family makes less than $300,000 (or whatever the upper threshold is in your county). Anyone seeking larger scholarships—which would include most private school applicants—would still undergo full income documentation.
What’s the risk? Perhaps somewhere a rich public school parent would lie, but even that is doubtful. My guess is that wealthy families would prefer to pay a minor fee out of pocket rather than falsify a document.
Where districts hope to augment their basic programs, they’d need all (or nearly all) of their students to participate. We assumed this “bundle option” was possible when we predicted that FSTC could generate some $1,000 per public school student. Permitting income attestation would ensure this option remains on the table.
Treasury has a chance to get this right in the revisions. Let’s hope they do.
