PAUL PETERSON, HOST:
This is the Education Exchange with Paul Peterson. I am the director of the Program on Education Policy and Governance at Harvard University. Thank you for joining me. Three and a half years ago, Arkansas enacted an education savings account initiative. It’s called the Education Freedom Account. Initially, eligibility for participation in the program was limited to students of low income or those with special disabilities. What they could do is use their savings account to pay for a private school or they could use it for ancillary services. The only thing that was required was that they not attend the public school. So, if you stayed in a public school you’re not eligible otherwise you’re you were eligible if you were within a specific set of categories that allowed for a targeted program. But as the program continued, it expanded and became a universal scholarship program available to virtually everybody in Arkansas. And this has really changed the picture, and questions have arisen. Who is receiving this scholarship or making use of these accounts? And is the program expanding rapidly? Are low-income families still being served? Who is the target now that there is no specific target? Well, a new report has just been released by the Department of School Reform at the University of Arkansas, and it’s entitled, well, it’s just a report on the operations of the Arkansas Education Freedom Account Program. The lead author is Misty Gallo, a PhD candidate in the Department of School Reform at the University of Arkansas. And I’m very pleased that Misty has joined me on the Education Exchange. Thank you for joining me, Misty.
MISTY GALLO: Thank you for having me, Dr. Peterson.
PETERSON: Well, Misty, the ESA program or … I guess it’s got its own title, but the Education Savings Account Program in Arkansas has tripled in size from 15,000 students to 45,000 students in just three years. That’s a rapid increase. So, what percentage of students in Arkansas are now participating in this program?
GALLO: As you know, this was a rapid increase this year with the first year of eligibility extended to all students in the state of Arkansas who were eligible to enroll in a public school. Currently, just under 45,000 students were recipients of the ESA funds in the ’25–’26 school year, and that was just under 9 percent of state-supported K-12 students.
PETERSON: Well, 9 percent is pretty healthy. The private sector nationwide is around 8 percent, I think. Maybe it’s up to 9 percent now, but it’s really quite a substantial program now. What impact is this having on the public schools in Arkansas? Are they losing enrollment?
GALLO: So that was a part of the report that we looked at. We looked at the fiscal impact on public school funding in the state of Arkansas. That was conducted by one of my colleagues, Dr. Allison Heap-Johnson and Dr. Josh McGee. The first thing that we looked at is how many students actually switched from public school in the state of Arkansas to enroll in the ESA program and it was just under 26 percent and so from there we were able to analyze what that switcher rate actually did to the public-school funding rate. It did not, we were able to see that that was, while the policy itself, the EFA policy, was a gross commitment of $307 million, the estimated public school formula savings was somewhere between $54 million and $62 million for an estimated total cost of about $250 million.
PETERSON: So, for those students, the 24 percent or I think that’s what you said, about a quarter of the students are switching from public schools to private schools or to a homeschooling sector because of, well, we don’t know if it’s because of the ESA program, but and are acquiring funds from the ESA program. There’s a savings there because the per pupil cost to the state is how much?
GALLO: The total cost in the state of Arkansas is just over $9,000. That’s the state allotted foundation amount.
PETERSON: And then how much is the education savings account funding?
GALLO: The base amount for the ESA is $6,864, or it was in the ’25–’26 school year. It was $6,864.
PETERSON: So it’s $6,800 as compared to what did you say?
GALLO: Just under $9,000. I think it’s about $8,500.
PETERSON: And that’s just the state share. How about the local share?
GALLO: Local and state. I can find that number. I believe that the total share in the state of Arkansas, the average is about $13,000. But I can look that up.
PETERSON: So it’s $13,000 to go to a public school in Arkansas. And this program is about half of that, right? About, would you say $7,000?
GALLO: $6,864 for the basic allotment.
PETERSON: Close to $7,000. So, it’s a little more than half. So, there’s a lot of savings there. But there’s a lot of people who were already at private school; 75 percent of these students were already at private school or were homeschoolers. And now they’re getting $7,000 a year, just about, from the ESA. So, when you factor that in, there’s no savings to the taxpayer in Arkansas from this program. It’s actually going to cost them, or you could look at it another way. The investment in education is actually larger than before this program.
GALLO: That is one way to look at it, because now the students who previously were self-funded to either homeschool or to enroll in micro- or private school, are part of the public funding that all students in the state of Arkansas receive. Yes.
PETERSON: So, it sounds to me that it’s pretty close to a wash if you figure that the savings accrue to local taxpayers as well as to state taxpayers. I really don’t give a hoot whether it’s my taxes to the state or my taxes to my local school district that we’re talking about. It’s just me paying taxes. So, when you think about it put all together, this is about a wash, I would say, right? Because you’ve got, three times as many coming from the private school, but then you’re saving about 50 percent on the 25 percent that are actually switching from the public schools to the private sector.
GALLO: I would agree. And I would agree with a caveat. These are students who, for whatever reason, even had they already been enrolled in private and homeschool. These were students whose families had made the decision that a different option outside of their local public school was better for that student. And so, these are students who, just as every student in the state of Arkansas deserves a robust and valuable education; these are students whose families decided that that education was best suited for their child outside of the public school, the neighborhood public school.
PETERSON: Well, I have a son who’s got three children. Two of them are in private school. And he would agree with you. It’d be nice to have some money to help defray the cost because it can become pretty expensive now. But still, it’s only $7,000. What’s the tuition at private schools in Arkansas?
GALLO: That is something that’s been really interesting to look at. One of my main areas of interest when I was engaged in crafting with the team of working on the annual report is looking at the supply itself of private school and microschool options. Because what you don’t want, if there aren’t enough private schools in the supply landscape and the ecosystem, then tuition could go up and then we would price out students from the actual selection of these schools.
PETERSON: Yeah, this could be just a program that funds the private schools and they’re making out like gangbusters here.
GALLO: That’s exactly right. That’s exactly right. And one of the areas that I was really interested in is what’s happening to the supply in the state of Arkansas. And so, part of the report that we wrote, we looked at participating schools, microschools and private schools, over the years. And so, as an example—and I don’t want to throw out too many numbers—last year in ’24–’25; there were a total of 126 participating schools. This year in ’25–’26, that number grew to 265.
PETERSON: Okay. Are there more private schools in the state of Arkansas today than was just two years ago?
GALLO: Absolutely. And there aren’t just more private schools. There are also more of this emergent model of microschool. And so, we already have the numbers for next year.
PETERSON: So now I want to ask you this question. What’s the difference between a private school and a microschool?
GALLO: Oh, boy, I’m going to get myself in trouble if I try to define it. In the state of Arkansas, regardless if you are a private school or a microschool founder, you have to get approved as a participating school every year. Schools largely are able to self-describe if they are applying as a microschool or a private school. I think that I can hear in my mind some of my microschool friends really pushing back a definition, a definitive definition that would either have a number attached to it or some policies.
PETERSON: So, it’s a matter of what you call yourself. If you call yourself a microschool, you’re a microschool. I assume that means you don’t have very many students.
GALLO: For the most part, yes. But there are a couple of microschools in the state that are the size of what I would consider a very small private school. Their philosophies are very different for the most part than the philosophy of a private school founder. But there’s a ton of variation in the microschool world. But we did see a big growth in microschools. And what’s interesting about that is as the microschool sector grew, they also are enrolling a different, in many ways, a different type of student. We see more of our special needs students enrolling in microschools. We see more students in rural areas enrolling in microschools. And so that area is really filling some of the concerns about supply gaps.
PETERSON: Well, now, the public-school enrollment declined in Arkansas over the last couple of years. So, in fact, it’s gone down 2 percent over the last two years. So, you know, that’s keeping with the national average as a nationwide trend downward. But then Arkansas is a growing state. Is the ESA program having an adverse effect on the public schools in Arkansas?
GALLO: So, I think that’s an interesting question. And there’s been a lot of research about public school declines nationwide. I would say what I know about that area in Arkansas, in the state of Arkansas, is public school decline is not happening throughout the entire state. Arkansas is a super diverse state with the northwest corner definitely being a growing area. I would not anticipate that we would see public school declines in that northwest area, which is where I live. In the southeastern corner on the other hand —
PETERSON: So, Fayetteville.
GALLO: Exactly.
PETERSON: The Walmart operation.
GALLO: That’s right. The Waltons area, that’s right. But then down in the southeastern corner, it’s an aging population. It is probably experiencing more of that decline that you’re talking about. So, absolutely, the public-school decline is happening in Arkansas as it is in every state, but it’s happening differently depending on the area of the state.
PETERSON: Well, about 16 percent of the students participating in ESA in Arkansas are identified as having a disability, and that’s about the same as 15 percent nationwide. So, why are so many students with disabilities taking advantage of this program when you already have in the public schools a highly specialized program that’s specifically designed for those with disabilities?
GALLO: Great question. So, I was a public school teacher for about half of my career. I was a teacher for 20 years. And you’re exactly right. The public school does a valiant job of taking care of the needs of students with all kinds of exceptionalities. The state of Arkansas, I believe the number is 15.1 percent of the students in the state of Arkansas have designated disabilities. That number is over 16 percent in the EFA program recipient pool. It’s actually 16.3 percent. I think that families are attracted to the level of personalization that private schools, microschools, and home schools can provide to their students. Of course, public schools are able to care for those with profound disabilities and the students with all levels of disabilities. But students who may have issues with severe anxiety or specific learning disabilities or autism may find themselves better suited for a smaller and more nimble environment.
PETERSON: Well, how happy are the parents who use these ESAs? Are they reporting that this is… you know, the best thing that they’ve experienced or what’s the satisfaction level?
GALLO: Great question. So, part of the application process each May is the Arkansas Department of Education sends out a survey for parents who’ve participated to ask questions about the satisfaction, but also about motivations for why students applied. They asked questions about things like how satisfied they were with the communication or with the ease of application. And for each of those, the answers were anywhere between 80 and 90 percent expressing the top to levels of satisfaction or of approval of the EFA process.
PETERSON: Well, that’s just being satisfied with the minutiae of applying, but how about the schools themselves? Are they happy with these schools that they’re going to now?
GALLO: So, the way that we measured that is through retention. We were able to see from the ’24–’25 calendar year to the ’25–’26 calendar year, how many students remained at the same school and also how many students may not have remained at the same school, but they remained in the program overall. And what we saw is that 95.8 percent of the students who were EFA students in ’24–’25 stayed in the program in ’25–’26. About 84 percent of the students stayed at their same private school. Now, it’s hard for us to say if the students who didn’t stay at the same private school left because they were dissatisfied or if they left because the school was only a K through 8th grade school, so they needed to go somewhere else. But we do see that student retention overall is very high.
PETERSON: Well, that is very high because you get that much turnover just in general. People are always moving from one part of the country to another or one part of the city to another. So, if you look at turnover, it’s in that range. So, this is certainly equivalent to what you have with a public school, and it could be a higher rate of retention just based on my eyeballing statistics over the years. So, but now how about are they learning anything? Do you have anything on the achievement of the students?
GALLO: Absolutely. So, part of the part of the requirement for application each subsequent year is that students are required to take and report a nationally normed test, or they can take the state criterion-referenced test. And we are able to see how students are doing compared to peer groups. There were some students that were given exemptions, but overall, we had about 39,000 of our 45,000 students with percentile or criterion-referenced scores that we can make some comparisons. The average reported percentile ranks, we looked at both all EFA recipients, private school recipients, and home school microschool recipients. And what we saw from all students would be 62nd percentile for math and 66th percentile for reading. That number grew for our homeschool population, the homeschool-microschool population, to actually a 70th percentile score for the reading test, which means that homeschool students in the EFA program scored as well or better than 70 percent of their peers, which is a pretty remarkable finding.
PETERSON: Well, that is a high finding, but maybe it just is because ESA is a program that’s attracting more advantaged people. I was struck by the fact that a third of the students in Arkansas are Black or Latino, but only a tenth of them are participating in ESA. And meanwhile, 75 percent of ESA recipients are white. So is this a program that’s really mainly for white families?
GALLO: I hope not. I think that that is not the intention for sure. What we see is that the percent of students who received an EFA in the state of Arkansas this year is out of balance when we compare it to the state with the non-white percent of the state. When we look at the actual state map, we really see that our areas of diversity in the state are also the areas of the lowest numbers of participating schools and also the lowest number of participating students. And so, there is a thought that supply may drive the demand that if we can have some additional schools emerge in some of those more under-resourced areas, then perhaps that would attract some students. One thing that I would note is the microschool community in the state of Arkansas has a larger percentage of non-white students, and it also has a larger percentage of special needs students. And it’s possible that, again, those emergent schools that may be less expensive would be an area that would provide additional options for non-white students.
PETERSON: Well, but still, the microschools so far are pretty small percentage of the total, right? Two percent.
GALLO: For sure. Yeah, 3 percent … 2.9 percent.
PETERSON: But you’re saying that might be a big growth area. And you’re sort of saying that, yes, with any innovation, you tend to get the more advantaged population being the first to take up the opportunity. But as it expands going forward, it may become increasingly attractive to a broader segment of the population.
GALLO: That’s exactly right. And I would just add that one encouraging piece when I look at the numbers for next year’s participating schools; we see another big jump in growth. This calendar year from 2026 to 2027, we see an additional 10 private schools emerge, but we saw an additional 48 microschools. And the supply is definitely growing, which hopefully will provide additional options for students who may be in areas that need additional supply.
PETERSON: Now, there’s a federal scholarship program that’s just been announced, and the regulations have come out, and it’s going to begin in January. And one of the questions that arises is, will you be able to use a scholarship from this federal program, which those scholarships might be targeted to low-income families? Are you going to be able to use that combined with the ESA, or have they got to be either one or the other?
GALLO: I believe, and I have not read the requirements or the regulations for the FCTS, but from what I understand, that is an option for any student under a very, very high-income requirement who is eligible to enroll in any public school. And so that federal tax credit is actually an option for both public-school students and private school students. And it is considered separate and apart from the award of the state level EFA.
PETERSON: Well, so if you got, say, a $7,000 scholarship from the federal scholarship granting organization, and you got $7,000 from the ESAs, you could probably pretty much pay for your private school tuition.
GALLO: Absolutely. And I know that the baseline… the tax credit can stack. So, the contribution from the taxpayer is $1,700. It can be more if you’re filing jointly, but for the recipients, it can stack so you can get more than just the initial $1,700.
PETERSON: Well, what political opposition to this program has emerged? Are you finding that this is extremely popular, or is there sources of opposition that might affect the way the program will be operated in the future?
GALLO: So, for sure, there are pockets of opposition. Our job as the crafters of the annual report was really to be agnostic and to just look at the data as the data. But we are in an election season. And I know that there have been one of the gubernatorial candidates has stated that his opposition to the EFA program in the state of Arkansas in general. I believe that the main opposition really surrounds the potential or the appearance of unequal access that some students have an easier time to receive and use an ESA award than other students. But I do think that that could be a misreading of kind of the full context of the program.
PETERSON: So, there will be opposition, but what’s your forecast for at least the next year or so? Is this program going to … It tripled in size. Is it going to double in size again?
GALLO: No. So, we see the numbers for this calendar year, the ’26–’27. By mid-September, there were just under 50,000 students who had been awarded funding for this year. So, we see incremental growth, but not that large growth when it went to fully universal. I think that we’ll continue seeing growth on both the supply side and on the participant side. I will say in the state of Arkansas, it is a fairly popular program, for sure among the users and among the general public. There are definitely pockets of opposition and fear that it will negatively impact public schools. But the longer that we see that that’s not happening, I think that those pockets of opposition may not continue to spread.
PETERSON: Well, how about the performance of the public schools in Arkansas? Across the country, there’s been a major decline in student performance in the elementary years. Is Arkansas an exception to that trend?
GALLO: You know, it’s so interesting that you asked that. I just saw something this morning that talked about rather than talking only about the Mississippi miracle, it’s time to talk about what’s happening in Arkansas because Arkansas public schools are improving in many ways. Their literacy scores are showing improvements. There has been an increased effort at expanding statewide literacy proficiency. Part of my department works on the statewide accountability measures, and Arkansas public schools definitely are showing some improvements overall. So, I’m really encouraged by what’s happening in Arkansas public schools.
PETERSON: Well, one thing I noticed in your data was that the ones who are using the scholarship are mainly elementary school students. I may be exaggerating slightly, but it was a higher take-up rate. More of the resources are being used for elementary school children than for middle school and high school. So there seems to be … You know, when I look at the educational system, I always say that high school is the biggest problem out there. And we need some alternatives to the high school program. But what I see in Arkansas is that, you know, the take-up rate is less at the high school level than at the elementary school level. Do you have any thoughts on that?
GALLO: Yeah. I’ll speak first, purely anecdotally. I taught school, both public and private school. One of my kids, I have two children of my own. One of my children graduated from a public school and one graduated from a private school. My son graduated from a public school, and he changed over to the public school in 9th grade for one reason and one reason only. And it was sports because public school offers a larger just swath of extracurriculars. And I don’t … we don’t ask. parents why they are in different schools in different grades. But you’re exactly right. We see the largest numbers as a percent in kinder through 5th grade. And then that number goes down starting in 6th grade. And then it declines further starting in 9th grade.
PETERSON: That may be more than just sports, too. It could be sports. It could be music. It could be, you know, all these extracurriculars that public schools have offered for years.
GALLO: You’re exactly right. And I would anticipate that that may be driving some of it. The other just hypothesis that I would have is it’s much less likely that a parent is going to switch her child into a private school in the later grades. The switchers may be those younger grades rather than the older grades.
PETERSON: Well, thank you very much, Misty, for sharing the insights from your report on the Arkansas Education Savings Account Program.
GALLO: Absolutely. Glad to join you.
PETERSON: I’ve been speaking with Misty Gallo. She’s the lead author of a recently released report on the Arkansas Education Savings Program. I am Paul Peterson. This is the Education Exchange. Please join me for a new Education Exchange podcast released on the Education Next website every Monday at noon Eastern time.
