Full-spectrum Education Choice
Historic changes are underway in American elementary and secondary education. As of this writing, 19 states have established K-12 education-choice programs for all resident children. Altogether, nearly half of the nation's school-aged children will be eligible for publicly funded programs that give their parents the freedom to choose the best learning environment for them.
These changes come at an opportune time. The latest National Assessment of Educational Progress (NAEP) results revealed historically poor test scores among the nation's students. Nearly one-in-three American 12th graders scored "below basic" in reading, while almost half scored "below basic" in mathematics. The average reading scores were the lowest reported since the government began administering the NAEP exam in 1992. All of this raises alarming questions about students' readiness to attend college, join the workforce, and participate in civic life in adulthood.
It also suggests that, all too often, the time and resources invested in many young Americans' elementary and secondary schooling are being squandered. The average student in the high-school class of 2023 had over $200,000 spent on his public schooling and the opportunity to attend school for more than 2,300 days. Nonetheless, most of these high schoolers did not attain proficiency in reading or mathematics.
The adults who control the nation's public-school systems decided how those days and resources were spent. Some of their choices undermined students' interests. The most visible was many public-school districts' decision to close during the Covid-19 pandemic, sometimes well into the 2020-21 school year when many schools had safely reopened without endangering students' health. Alarmingly, many school districts also ignored the overwhelming scientific evidence about the best ways to teach children how to read. Their failure to employ effective pedagogies based on this evidence delayed or denied millions of students the chance to master this foundational skill at a young age.
The new state education-choice initiatives have the potential to address the nation's elementary- and secondary-school learning crisis. Unlike past school-voucher or scholarship programs, which only allowed parents to choose where their children attend school, these new account-based education initiatives let parents choose where, when, and how they learn.
Giving parents this sort of control creates new opportunities for teachers, school leaders, and entrepreneurs to provide high-quality instruction, learning models, and other services that have the potential to dramatically increase the return on taxpayers' investment in public schooling. And as vehicles for administering public benefits, education accounts have the further potential to achieve broader public-policy goals, including promoting lifelong learning, encouraging job training, and even reducing wealth inequality and promoting retirement security. In the future, these accounts may serve as the primary policy lever for promoting the development of human capital and intergenerational social mobility.
THE RISE OF UNIVERSAL EDUCATION CHOICE
The debate over school choice dates back decades, to Milton Friedman's seminal 1955 essay on school vouchers. But the very label of the legacy debate — school choice — reflects its narrow scope. Over time, the debate evolved, gradually expanding from vouchers to Education Savings Accounts (ESAs) to the recent emergence of what one might call "full spectrum" education choice.
Friedman's idea of using consumer choice to promote competition in education provided a promising option for addressing broad inequality and underperformance in American K-12 public schooling. By the end of the 20th century, the nation's first school-voucher programs were adopted in Milwaukee and Cleveland, as well as in states like Florida. Other states, including Arizona and Pennsylvania, created tax incentives to encourage contributions to private-school scholarships. The emergence of new civil-society organizations, notably the Children's Scholarship Fund, indicated strong demand among parents for the chance to choose their child's school.
But these early scholarship and voucher proposals only aimed to help families select which schools to send their children to. Over time, the educational-choice movement evolved to focus on far more versatile policy tools, such as ESAs, which allowed parents to choose not just among schools, but a range of educational options. Since the mid-2000s, lawmakers have increasingly backed reforms to establish broad parental choice in K-12 education, including the option of selecting among multiple providers, tutors, and outside-of-school learning opportunities.
These innovations followed a similar initiative to use accounts to give Americans greater control of higher-education funding. During the 1990s, Congress established 529 accounts for college savings. Like Roth IRAs, 529 accounts enable owners to invest after-tax dollars in funds, which can be withdrawn tax free if spent on allowed uses. Owners can also transfer the accounts to their children. For the following two decades, the accounts could only be used for post-secondary schooling, but lawmakers have since transformed them into tax-free savings vehicles that promote the full spectrum of education choice.
In 2017, for example, the Tax Cuts and Jobs Act broadened the allowable uses of 529 funds to include K-12 tuition. Two years later, Congress further expanded allowable uses to include student-loan repayments and apprenticeship programs. In 2022, lawmakers extended these uses further — this time to allow up to $35,000 to be rolled over into Roth IRAs for retirement savings.
This broad expansion of 529 accounts to cover post-college expenses, including retirement, marks a new chapter in a decades-old debate. Building on the changes Senator Ted Cruz and other champions of education choice pushed in 2017, last summer's One Big Beautiful Bill Act transformed 529 accounts into an updated blueprint for human-capital infrastructure. Under the new framework, expanding access to high-quality primary- and secondary-education options is just one component of the program; parents can now spend 529 funds on private schooling or homeschooling expenses, tutors for students who attend traditional K-12 schools, vocational training, occupational-licensing programs in the trades, continued professional education, and mid-career re-credentialing. In short, consumers can invest in their own learning and skills development across the entire range of education options.
With these broad, lifelong uses, it's no surprise that 529 accounts have grown in popularity among Americans who can afford to use them. As of 2024, Americans had $500 billion in 16 million 529 savings plans.
Historically, 529 accounts have been used by more affluent families. In 2012, a Government Accountability Office (GAO) report found that less than 3% of Americans were using 529 accounts. Similarly, a Federal Reserve analysis of consumer-finance data showed that, of that share using the accounts as of 2013, ownership among those living below the median income or in households below the median wealth level was just 0.3%. A 2024 survey found that half of Americans were not even aware 529 accounts exist.
But public and private initiatives to help more families use 529 accounts to save for their children's education are making these investment options more accessible. Thirty-four states and the District of Columbia provide income-tax deductions or credits for contributions to 529 accounts. Since nine states do not tax income, this means the majority of states with such taxes provide some form of incentive for 529-account contributions.
Other incentives are broadening awareness of 529 accounts. Many companies are now facilitating 529-account contributions, including by allowing funds to be withheld and directly invested into these accounts through payroll deductions. According to the Employee Benefit Research Institute, 15% of employers with at least 500 workers help their employees fund 529 accounts as of 2024. In at least eight states — Arkansas, Colorado, Idaho, Illinois, Nebraska, Nevada, Pennsylvania, and Wisconsin — employers are eligible for tax breaks if they deposit funds into or provide matching contributions to their employees' 529 accounts.
EXPANDED CHILD SAVINGS ACCOUNTS
The state-level incentives to encourage public or private contributions to 529 accounts reflect growing support for Child Savings Account (CSA) programs. These initiatives generally involve public or philanthropic efforts to establish financial accounts for children, often at birth or early in their lives, to encourage long-term savings and investment in education, job training, or wealth building.
CSA programs usually begin with a seed investment from a third party, which can include government or a charity, and matching funds to encourage families to continue contributing to their child's account. The GAO reviewed the available information about CSA programs in 2020 and reported that, as of 2019, 82 CSA programs were operating and had enrolled about 700,000 children.
Maine's Alfond grant program is a prominent example. Since 2013, the non-profit Alfond Scholarship Foundation has contributed $500 into a 529 account for each child born in Maine. As of 2025, the program has provided more than $90 million to the accounts of 180,000 Maine children. The Congressional Research Service reports that the number of American children with CSAs grew from less than 1 million in 2020 to nearly 6 million in 2023.
Though CSA programs have been the focus of relatively little academic research, there is encouraging evidence that these programs benefit participants, help reduce wealth inequality, and promote upward mobility. The GAO's 2020 review, for instance, concluded that CSA programs "have positive short-term effects on families," including increased savings rates and educational expectations.
In one prominent study in Oklahoma, researchers conducted a randomized-control trial of the effects of enrollment at a child's birth. The treatment group received a $1,000 contribution into a 529 account, a $100 account-opening incentive, a modest savings match, and educational materials and quarterly information about the child's account, while the control group received none of these things. Unsurprisingly, the Oklahoma families who received these benefits gained financially compared to the control group, and the former were much more likely to be saving on their own for the child's future college expenses. The study showed significant non-financial benefits for participants as well, including raising mothers' expectations for their children's education, increasing parental mental health, and improving children's social-emotional development.
The number of American children owning a savings account is now set to balloon. The One Big Beautiful Bill Act established a pilot program to deposit $1,000 into new Trump Accounts for all American children born between January 1, 2025, and the end of 2028. While the federal seed capital is reserved for children born over the next few years, Trump Accounts may be established for any American under age 18. Once created, these accounts can be funded by civil society — families, relatives, employers, and even philanthropists. Families can contribute after-tax funds to their children's Trump Accounts worth up to $5,000, while their employers can contribute up to $2,500.
The Trump Accounts have shown themselves to be an attractive destination for private funding aimed at helping more Americans become financially independent. Michael and Susan Dell, for instance, announced they would contribute more than $6 billion to the accounts of 25 million children under the age of 10. Ray Dalio announced he would contribute $75 million to roughly 300,000 children living in Connecticut — a gift the Trump administration highlighted as part of a 50-state challenge seeking similar state-focused donations across the country. Meanwhile, numerous major companies, including Uber, Robinhood, Chipotle, Steak 'n Shake, JPMorganChase, and BlackRock, have announced that they would contribute to the Trump Accounts of their employees' children. More employers are expected to incorporate Trump Account contribution plans into their standard benefit packages once the Treasury Department releases tax guidance on these plans this summer.
Altogether, the new federal investments in Trump Accounts for newborns are expected to cost about $15 billion over four years, representing a historic public expenditure on wealth building. Though government or private funds invested in these accounts cannot be used for K-12 tuition or some of the educational expenses covered under the rules for 529 accounts, they can be used for higher education, first-time home purchases, and business investments when children become adults.
JOB TRAINING AND LIFELONG LEARNING ACCOUNTS
Policymakers have begun applying the account-based program model to new subsidies for job training and workforce development as well. Indiana became the first state to use such a program to administer a job-training benefit in 2023. The state's Career Scholarship Accounts program contributes up to $5,000 annually to the accounts of high-school sophomores, juniors, and seniors. Funds are disbursed quarterly and can be used on eligible programs "to pursue apprenticeships, internships, work-based learning, and credentials of value."
Several other states provide scholarships or vouchers that give high-school students access to workforce or job-training programs. At the federal level, the Department of Labor (DOL) awards Individual Training Accounts (ITAs) — effectively vouchers for the costs of job training and workforce development — through the Workforce Innovation and Opportunity Act. According to a 2023 Harvard University analysis in 2023, the DOL spends roughly $500 million on ITAs annually and awards vouchers to roughly 220,000 people in 2019.
Though less studied, the initial assessments of the ITAs suggest the ongoing shift to a more personalized delivery of job-training benefits is producing positive results. The ITA program was the subject of a large experiment comparing the performance of competing ITA models throughout the United States. This evaluation, conducted by Mathematica, showed that across the board, the more flexible, customer-centered ITA programs were generally popular with participants. While the study pointed to a structured-choice model of delivery that combined a job-training voucher with some counseling as the best program design, the review indicated that the maximum-choice model also benefited participants. Another review linked access to ITAs with modest earnings increases.
In 2024, the U.S. Chamber of Commerce Foundation announced a public-private partnership with civil-society organizations and government entities in Indiana, Michigan, Tennessee, and Texas to establish Lifelong Learning Accounts. The chamber has also issued a blueprint for Skill Savings Accounts, which would allow employers and workers to save funds for skills-development costs. "These accounts," the chamber explained, "prioritize skills-based learning over traditional degree pathways, and are designed to be portable, worker-centric, and easily adaptable for a range of training needs."
K-12 EDUCATION REFORMS
Americans should be confident that the ongoing expansion of K-12 ESAs and 529s to enable broader parental choice in education will benefit American students, families, and society. Decades of research show that giving parents choices in education increases parental satisfaction, while studies of the long-term educational effects of private-school choice show that students who use scholarship or choice benefits to attend private schools are more likely to finish high school and enroll in and persist in college. More than three dozen high-quality studies evaluating the competitive effects of parental choice have found that voucher programs modestly increase the achievement of public-school students. Overall, decades of empirical evaluations of choice programs indicate that they are popular with the families who use them and, on balance, provide educational benefits to children who participate as well as those who remain in public school.
Ongoing policy reforms at the state and federal levels indicate strong political momentum for using ESAs to expand educational choice, CSAs and Trump Accounts to promote saving and wealth building, and training-account mechanisms to promote workforce development. Each of these reform movements will likely continue to expand in popularity and reach. To promote the full spectrum of choice, however, state and federal lawmakers will need to better align their policies.
While the federal government does not tax 529 accounts, states' tax policies affect how Americans can use the funds they contain. Some states tax the investment income if the owner withdraws it for certain purposes, including uses that are currently allowed under federal law. Californians who withdraw 529 funds to pay for K-12 education costs, for instance, must pay state income taxes plus an additional 2.5% tax penalty. States like Colorado, Illinois, Michigan, and Minnesota continue to tax 529 distributions for K-12 tuition. Some states that provide tax incentives for contributions to 529 accounts require that tax deductions or credits be recaptured if parents spend withdrawn funds on K-12 education. States should align their state income-tax rules with federal law and not punish 529 account owners who use deposited funds for K-12 expenses.
In the past, several states have used tax policies to discourage residents from spending 529 funds on private-school tuition. Now, thanks to the federal One Big Beautiful Bill Act, placing limits on K-12 uses would affect public-school students who may need to use 529 funds for tutoring. All states should enable their residents to use 529 accounts for the full spectrum of education choices and encourage residents to save through these accounts, perhaps by providing state-tax benefits to individuals and employers who make contributions. In addition, states that establish state-funded K-12 ESA programs should give participating families the option of saving unspent funds for future costs and, after high school, transferring them into a 529 account.
State policymakers should also consider using account-based reforms to address differences in outside-of-school enrichment spending, which contributes significantly to the academic-achievement gap between socioeconomic classes. Researchers found that in 2006, the richest 20% of American families spent approximately $9,400 per household on outside enrichment for their children, compared to $1,400 spent by the poorest 20%. State lawmakers could help close the gap by establishing "micro-grant" ESA programs, which focus on providing flexible financial assistance for tutoring or related educational expenses. Idaho, for example, formerly offered micro-grants for tutoring and enrichment worth $1,000 per student or $3,000 per household through an account-based framework; that program was replaced last year with a refundable tax credit that provides up to $5,000 per student for private-school expenses.
States interested in pursuing this option could deposit a share of the statewide school-funding formula into 529 accounts to provide access to enrichment or tutoring. Traditional public schools or public charter schools could similarly contribute a share of their funding to attract students and expand the instructional services they are able to offer.
States with K-12 ESAs have encountered some administrative and management challenges in establishing the financial and technical infrastructure to oversee these accounts, especially when it comes to balancing the need for transparency, public oversight, and accountability with the desire to help families access and use these funds in a timely and flexible way. The current infrastructure used for 529-account funds could provide the legal framework, technical infrastructure, and established administrative system for managing state-level ESA programs. At minimum, state officials and institutions involved with administering state-funded K-12 ESAs and 529s could draw from their respective experiences to improve customer service and ensure they are administering their programs effectively.
At the federal level, lawmakers should consider allowing parents to convert Trump Accounts into 529s. This would expand their allowable uses — which are currently limited to post-secondary school, homeownership, and business investment — to encompass the full spectrum of education choice. For the millions of Americans who will grow up with Trump Accounts, having the option of using funds on K-12 expenses or job training would make the accounts more useful. Such reforms would also align with the Trump administration's top priorities in education and workforce-development policy, in addition to increasing the likelihood that these accounts will endure beyond the three-year pilot.
Federal policymakers could also repurpose some funding traditionally intended to reduce inequality and promote equal opportunity — such as Title I funding or after-school funding through the 21st Century Community Learning Centers program — for other federal initiatives. One promising option would be to establish tutoring ESAs for the young Americans who show the highest potential in math and science. These accounts would give students an opportunity to access tutoring and summer school to accelerate their achievement. Repurposing some of the federal government's many disorganized STEM education programs to provide STEM ESAs could yield long-term economic and national-security dividends for the nation.
POST-SECONDARY AND WORKFORCE REFORMS
Federal policymakers also have an opportunity to restructure how the government administers benefits for post-secondary education, workforce programs, and job-training programs using account-based mechanisms. Doing so would give Americans more flexibility and control over how their share of these government funds are used.
Some have criticized the federal government's approach to funding post-secondary education for being inequitable, in large part because it offers more subsidies to Americans who pursue four-year and graduate studies. Americans who do not pursue post-secondary education receive no direct benefit from these federal subsidies. In addition, recent analysis by the American Enterprise Institute's Preston Cooper showed that students' return on investment (in terms of lifetime earnings) varies considerably based on the institution they attend and the coursework they complete.
Policymakers could create a more equitable framework by using a formula-funding approach. Through a mechanism like 529 accounts, the government might offer young adults the choice of using their share of subsidies on post-secondary education, job training, an apprenticeship, or even future lifelong-learning expenses. Such an approach could also reduce the risk that young adults will leave college at an economic disadvantage for having attended, particularly since many American workers face the prospect of needing to acquire new skills throughout adulthood to remain in the workforce.
In the short run, federal lawmakers should consider establishing more incentives for Americans to save in 529 accounts, such as offering tax benefits to lower-income Americans. They could also adopt incremental reforms that give Americans more options to use account-based structures to own and deploy public benefits for education and job training. In 2022, senators Susan Collins and Maggie Hassan introduced legislation that would have given recipients of the Retirement Savings Contributions Credit — which provides a partial tax credit to low- and middle-income Americans to encourage retirement savings — the option to save in 529 accounts. Similar changes could be included in future tax reforms.
In 2024, Congress nearly passed bipartisan legislation to reauthorize the Workforce Innovation and Opportunity Act, which would have prioritized additional funding for job-training vouchers. Lawmakers should try again, though this time instead of using ITAs as the funding mechanism, they should propose depositing grants into individually owned 529 accounts. This would promote greater flexibility by enabling recipients to use those funds for apprenticeships.
Finally, federal policymakers should consider allowing service members and veterans to choose to access GI-bill and other military benefits by receiving funding through a 529 account. This would give service members and veterans more choices about how and when to use education benefits, including whether to use those funds immediately or to potentially save and transfer them to their children in the future.
EDUCATIONAL INDEPENDENCE
As noted at the outset, more than 16 million Americans own 529 accounts, with cumulative assets that exceed $500 billion. Starting in the fall, more than 20 million American children will be able to participate in K-12 education-choice programs. And in the not-too-distant future, the 3 million children who will likely be born in America in 2026 will be able to use their Trump Accounts to get a head start on saving for college and future life expenses.
ESAs, 529s, and CSAs are now broadly integrated into American life. This gives federal and state policymakers a golden opportunity to align these account-based initiatives and creatively restructure current and future public benefits, giving Americans more control over their pursuit of happiness.
