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The Inclusive Economy

CSAs and ESAs Are More Different Than the Words Suggest

By Monica Copeland on 02/13/2017 @ 01:00 PM

Tags: Children's Savings Accounts

We have recently observed an uptick in news stories and legislation about Education Savings Accounts (ESAs), which are individual flexible use accounts funded by states for families’ private educational expenses. ESA legislation has been adopted in five states since 2011. As many as 18 states introduced ESA legislation in 2016, and North Dakota and New Hampshire are currently considering ESA bills. Given the new Secretary of Education Betsy DeVos’ support for school voucher programs, tax credits and ESAs, we expect to see continued discussion of this policy. The growth of ESAs poses a challenge for the Children’s Savings Account (CSA) field, since though the names sound very similar, the goals are completely different.

How are ESAs different from CSAs?

As described in a previous blog, ESAs and CSAs have at least four fundamental differences.

  1. ESAs are not really savings accounts. ESAs are flexible spending accounts which allow families who have opted out of public education to use public funds to pay for expenses such as tuition and fees at private or parochial schools, home schooling, tutoring or online courses.
  2. ESAs are not about post-secondary education. Unlike CSAs, whose proceeds are primarily designated for investing in post-secondary education, ESAs pay for primary and secondary education expenses.
  3. ESAs provide no incentives for parents to actively contribute to the account. A fundamental feature of CSAs is that they offer savings incentives that encourage accountholders to save and build wealth in their accounts. ESAs offer none of these features.
  4. ESAs have few, if any, progressive features. With the exception of addressing a few unique populations, ESAs are not addressing gaps in wealth. An important feature of many CSAs is a progressive incentive structure that provides greater incentives for low- and moderate-income savers. In this way, greater benefits are directed toward those with less means.

Why is this an issue for our field?

The risk for our field is that as we advocate for CSA policies, they may get confused or conflated with ESA policies. For example, there is the potential for this confusion in New Hampshire, which currently has both CSA and ESA legislation pending. Calling what is essentially a voucher policy an “Education Savings Account” contributes further to the confusion, since it implies that families are putting savings into the accounts when they are not.

As we continue to promote the expansion of CSAs at the local, state and federal levels, we will keep a close eye on this issue. We encourage our partners and advocates to help raise awareness of the differences between these policies and make sure there isn’t confusion as you develop CSA programs in your communities. To learn more about CSA policies visit savingsforkids.org.

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