A win-win solution: using tax credit scholarships for before and after care
even if Treasury doesn't fix its federal tax credit scholarship guidance, states may still be able to leverage the program to advance child care and early learning goals
Last week I argued that early childhood advocates should be paying more attention to the new Federal Scholarship Tax Credit (FSTC) program created by the One Big Beautiful Bill Act (OBBBA), and advocating for Treasury to revise preview guidance it released earlier this summer to clarify that children eligible to enroll in preK offered by an elementary or secondary school are eligible for FSTC.
Today I want to talk about how state systems leaders and early childhood advocates at the state level can leverage FSTC to advance state child care and early learning goals—even if Treasury doesn’t make any changes. The key is thinking about the interconnections between federal child care funding; state child care subsidy programs; before, after, and summer care for school-aged children; and the new FSTC program.
Statute is clear that FSTC can’t be used for services to children not yet age-eligible to enroll in public elementary and secondary schools. And the Treasury’s preview guidance appears to indicate (wrongly, in my view) that it can only be used for children in grades “K-12”. Both the underlying statute and Treasury’s preview guidance seem clear, however, that FSTC can be used to support before, after, and summer school programming for school-aged children, including school-aged children enrolled in public, private, or charter schools.
Before, after, and school-aged care for school-age children (up to age 13, or older for children with disabilities) are also an allowed use federal Child Care and Development Block Grant (CCDBG) funds, the primary federal funding source for child care. Although most people who are aware of CCDBG, and the state child care subsidy (often called vouchers, but not that kind of voucher!) programs it supports, tend to think of CCDBG and subsidy as early childhood programs, a significant percentage of children served with CCDBG funds are school-aged children using vouchers for before, after, or summer care.
State leaders should be thinking about how to leverage the new FSTC as a source of funding for before, after, and summer school programming. How would a state do this? First, the governor would need to opt the state in to the new FSTC program. Second, the state would need to identify scholarship granting organizations (SGOs) that are particularly focused on scholarships for before, after, and summer care. That doesn’t mean the state would need to create the SGOs themselves—they could partner with national organizations standing up SGOs to distribute FSTC for children enrolled in public schools. Or nonprofit organizations working on before, after, and summer care at the national or state level could create SGOs for this purpose. Third, states could leverage the governor’s platform and use communications campaigns and collaborating with tax preparation professionals to encourage taxpayers who want to claim the credit to direct their contributions to SGOs providing before, after, and summer care.
Done strategically, this approach could be a win for early childhood, public education, and school choice constituencies, because it would:
Reduce the extent to which FSTCs result in public schools losing enrollment to private schools, by encouraging taxpayers to direct contributions to SGOs providing supplemental before, after, and summer care to children enrolled in public (including charter) schools;
Address pressing needs parents have for help accessing and paying for before, after, and summer care;
Potentially enable savvy states to shift CCDBG funds away from school-aged care to increase child care subsidy funding available for infants, toddlers and preschoolers, or to prioritize incremental state investments in subsidies for the youngest students; and
Build the base of support for FSTC and the incentives for governors of blue states to opt (and remain) in.
I still hope that Treasury’s final FSTC guidance will clearly allow children eligible for preK offered in public elementary or secondary schools to benefit from the program; if not, though, states should still explore the opportunity to leverage the program to address gaps in school-aged before, after, and summer care, ideally in ways that also free up subsidy resources for younger children.
This is exactly the type of systems thinking we need, but I’d push the conversation one level deeper.
The real opportunity isn’t simply to redirect a new funding stream. It’s to begin designing the finance architecture that supports an integrated civic infrastructure for children and families.
The FSTC, CCDBG, state pre-K, Head Start, local investments, philanthropy, employer contributions, and other public and private funding mechanisms shouldn’t be viewed as separate funding silos competing for children. They should be understood as layers within a coordinated financing ecosystem that supports the full developmental continuum.
From that perspective, before-school, after-school, summer learning, child care, preschool, family support, and community learning hubs are not disconnected programs—they are components of the same civic infrastructure that enables children, families, schools, and local economies to thrive.
But financing that infrastructure requires thinking beyond funding streams alone. It requires building a capital stack for childhood that aligns different forms of investment around a common civic purpose.
For example:
Operating Capital sustains day-to-day services through CCDBG, FSTC, Head Start, state child care subsidies, tuition, and local education funding.
Infrastructure Capital builds and modernizes the physical and digital assets that communities rely on—early learning centers, community schools, family resource hubs, libraries, parks, broadband, and shared facilities.
Innovation Capital supports experimentation, demonstration projects, and new delivery models through philanthropy, federal innovation grants, social impact investments, and research partnerships.
Stewardship Capital finances what is too often overlooked: the connective tissue of the system. Shared governance, integrated data systems, technical assistance, workforce development, community planning, intermediary organizations, and continuous improvement all require dedicated investment if we expect fragmented programs to function as a coherent ecosystem.
Viewed this way, the FSTC becomes more than another funding stream. It becomes one layer within a broader finance architecture that strengthens before-school, after-school, and summer learning while allowing CCDBG resources to be strategically focused where market failures are greatest—infants, toddlers, and preschoolers.
The result is not simply more efficient funding. It is a more resilient civic infrastructure. Each layer of capital serves a distinct purpose, reducing dependence on any single revenue source while enabling communities to build systems that can adapt across political and economic cycles.
That’s the shift I hope this discussion opens. Funding pays for programs. Finance architectures build systems. Capital stacks sustain civic infrastructure. If our goal is an integrated ecosystem of learning and care from birth through adolescence, then we need to design financing systems that are just as integrated as the developmental systems we hope to create.