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December 2012 Policy Study, Number 12-13


Education Savings Account:

A Path to Give All Children an Effective Education and Prepare Them for Life


Arizona's Experience with Education Savings Accounts



Arizona lawmakers passed the first savings account bill, S.B. 1553, in 2011.[12] The bill made Arizona’s 125,000 students with special needs eligible to apply. Students must have attended a traditional school in the previous year. Parents sign a contract with the state’s department of education and agree not to enroll their child full time in a traditional school while using an account (otherwise, parents would be using student funds twice, once in the account and then again at a traditional school). Parents of students with special needs must also submit documentation on their children’s needs, such as their Individualized Education Plans or Multidisciplinary Education Team plans. The allowable expenses listed on page 4 were included in this first law, although the program’s expansion in 2012 specifically stated that public school classes could be purchased a la carte and that certain supplies (such as pencils and paper) were not eligible.


The 2012 bill that expanded the program extended eligibility to students in failing schools, children of active-duty military families, and children adopted out of the state’s foster care system (those students will be eligible in the 2013–14 school year).[13] Now, nearly one out of every five Arizona public school students — more than 200,000 children, as shown in figure 1 — are eligible for an account.[14]


Families apply by filling out an application on the Arizona Department of Education’s web site and returning it by the due date. Once the application is approved, the department of education and the treasurer’s office notify the state’s vendor (Bank of America) to send the parents an account number and a check card.


Figure 1. Expanding Education Savings Accounts in Arizona, 2011–13


As parents make purchases, they must keep all receipts and submit a report along with the receipts to the department of education at the end of each fiscal quarter. The department reviews the receipts to make sure all purchases are for educational expenses, and then the department signals the treasurer to make the next disbursement. Quarterly disbursements are withheld if any expense did not qualify. In Arizona’s first year with the accounts, most of the discrepancies that the department investigated were with parents who did not understand what expenses were qualifying educational expenses and what expenses were not. To provide parents with clearer direction, the department of education offered meetings in the department’s offices and online and will release a spending guide for parents in the 2012–13 school year.[15]


In addition to withholding funds, the Arizona Department of Education relies on two measures to prevent fraud and abuse of the accounts. First — and similar to food stamp debit cards — the department “unlocks” certain vendors while restricting others.[16] For example, as the first set of parents using the accounts told the department what schools they had chosen, the department of education allowed the cards to be used at those schools. Likewise, as parents made purchases at online retailers for special equipment or curricular materials, the department allowed those vendors.


This approach will not prevent all illegal expenses, however. Whereas families cannot purchase gas at a Shell service station, for example, because Shell is not an approved seller, families can use the cards at large retailers such as Walmart, where they can buy books and curricular materials. If parents make a purchase at one of those approved retailers, the department must be responsible for reviewing the purchases to make sure all of the expenses are lawful.


Second, the Arizona Department of Education conducts quarterly and annual audits. The annual audit and account balance reconciliation will help the department identify families that spent savings account money but did not submit receipts (suggestions on fraud-prevention procedures are outlined later in this report).


Kelly simply wanted her son, Aaron, to feel welcome at school. Diagnosed with autism at age six, Aaron was assigned a one-on-one specialist because he was considered a flight risk. But Kelly said that he had been placed in a class with students of varying needs and that “I felt he was being overlooked.”


His teachers struggled to provide for Aaron, Kelly explained, and the classroom setting just never seemed to fit.


Kelly applied for an education savings account in the program’s first year. After moving her son to a school that specialized with autistic students, Kelly said, “We saw the improvement and the changes right away.”


Kelly added, “We’re grateful to have the Education Savings Account. It’s been a really positive experience. We noticed a change from the moment he started going.”




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