Half of the United States’ states are at risk of forfeiting nearly $23 billion in education funding over the next three years by opting out of the Education Freedom Tax Credit (EFTC) program, according to a new analysis released by the America First Policy Institute (AFPI). This federally backed initiative encourages private donations to scholarship organizations by offering taxpayers a dollar-for-dollar federal tax credit of up to $1,700 for contributions supporting K–12 educational expenses.
The EFTC program aims to provide families with scholarships that cover private school tuition, homeschooling costs, special needs services, tutoring, dual enrollment, and curriculum assistance. However, only students residing in states that have formally opted into the program are eligible to receive these benefits. Taxpayers in nonparticipating states can claim the credit, but their contributions are redirected to scholarship organizations in other states, effectively sending education funds out of their home states.
To highlight the potential financial impact, AFPI has launched an interactive Funding Loss Calculator. This tool enables users to estimate how much education funding their state could lose by not joining the program, taking into account varying levels of participation. According to the projections, 23 states stand to miss out on nearly $23 billion between 2027 and 2029, translating to about 4.1 million fewer scholarship opportunities for students.
Erika Donalds, chair of educational opportunity at AFPI, emphasized the urgency for governors and local communities to understand the opportunities being forgone by opting out. “The program will provide not just private school tuition, but homeschool expenses, curriculum assistance, tutoring, special needs services, dual enrollment and so many other resources for families,” Donalds said. She also noted that these funds come exclusively from private donations, not state budgets.
So far, 28 governors have opted into the program, signaling strong interest but also underscoring that nearly half the states have yet to participate. Supporters argue that the program expands parental choice in education at a time when demand vastly exceeds supply. Donalds pointed to high application numbers as evidence: in Texas, about 250,000 applications were submitted in one month for a program that only supports 80,000 students; in Tennessee, over 50,000 applied for a program with just 20,000 slots available.
The stakes for education advocates and families are high as states weigh joining the EFTC. By passing on the opportunity, states risk funneling significant private education funding to other states, reducing local access to scholarships and educational resources that support diverse learning needs.
Why it matters
The decision by states to opt in or out of the EFTC program has direct consequences for educational choice, access, and funding equity. The projected loss of $23 billion in private scholarship funds for 4.1 million students could exacerbate existing education disparities, particularly in families seeking alternatives to public school options. With growing demand overwhelming available slots in states currently participating, joining the program could alleviate waitlists and broaden opportunities for more students nationwide.
Additionally, because the program leverages private donations rather than taxpayer money, opting in poses minimal fiscal risk to state budgets while potentially leveraging significant new resources for education. Governors and policymakers must consider how their participation—or refusal—will shape educational opportunities in their states over the coming years.
Background
The Education Freedom Tax Credit program is designed to empower parents with greater control over their children’s education by incentivizing private donations to scholarship-granting organizations. These scholarships help cover a broad range of educational expenses beyond traditional school tuition, including homeschooling and special needs services.
States must formally opt into the program to allow residents to use the federal tax credit for local educational scholarships. Without opting in, private donations from taxpayers in that state benefit other states instead. The AFPI’s interactive calculator serves as a tool to visualize these potential funding shifts and help state leaders understand the financial and educational implications of their choices.
The large interest observed in states like Texas and Tennessee reflects growing demand for school choice programs, highlighting the need for expanded scholarship funding to meet family needs nationwide. As of now, approximately 28 states have adopted the EFTC, while 23 remain on the sidelines, potentially losing billions in education support.
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