The $24 Billion Question

why early childhood advocates should care about federal tax credit scholarships and state education savings account initiatives, and how they should be pushing Treasury to fix its draft guidance

Last month, the U.S. Treasury Department previewed guidance on the new Education Freedom Tax Credits created by the One Big Beautiful Bill Act (OBBBA). That legislation allows taxpayers to receive a federal tax credit of up to $1,700 for contributions made to a Scholarship Granting Organization (SGO). The new credit (also known as federal scholarship tax credits, or FSTC, which I’ll be calling them for the remainder of this piece) has generated significant excitement among school choice proponents, concern among public education advocates, and heated debates among Democratic education reformers. So the guidance preview drew considerable attention in school choice and education policy circles.

FSTC have received far less attention from early childhood analysts and advocates, however. In one sense, that’s understandable: The text of the OBBBA legislation clearly limits use of FSTC to students “eligible to enroll in a public elementary or secondary school,” which significantly limits potential early childhood uses.

Yet from another angle, this seems like a huge missed opportunity: Analysts project the credit could generate $24 billion in funding nationally per year—that’s more than total federal funding for the Child Care and Development Block Grant (CCDBG) and Head Start combined! More broadly, in a climate where many states are expanding funding for tax credit scholarships, education savings accounts, and other education choice programs, early childhood advocates who ignore these initiatives may be leaving money on the table at a time when state fiscal conditions make it increasingly difficult to secure new early childhood funding.

In June, my colleague Katie Reed, along with Elliot Regenstein and Teresa Hawley, argued that education choice advocates should consider including early childhood in more state choice programs and initiatives. Today, I want to make the case that early childhood advocates need to pay more attention to these programs—and, in some contexts, consider them as a potential avenue for increasing early childhood funding.

FSTC are only a recent addition to a large and growing national landscape of state-funded education choice programs. As of January 2026, at least 30 states have some form of education savings account (ESA), tax credit scholarship, or private school voucher programs, which collectively distributed $10.6 billion in the preceding year. Both the number and amount of funding going to these programs has increased significantly over the past five years, with the greatest growth in ESAs, which allocate public funds to private accounts that parents can use to cover costs for a variety of allowed education activities (not just private school tuition) for eligible children. Currently, only a few such programs (in Texas, Wyoming, Arizona, and Florida) allow ESAs to be used for preK, and even those restrict pre-K ESA eligibility to children with disabilities, from low-income families, or who meet other eligibility requirements that don’t apply to ESAs for K-12 students. None allow ESAs to be used for younger children (i.e., infants and toddlers).

Why should early childhood advocates care? There are at least three reasons:

• First, as noted above, the amount of public funding going to these types of education choice programs has increased over the past 5 years, will likely continue to increase, and is one of the only places where education spending is growing in some states. In the current state fiscal and political context, ESAs or tax credit scholarships may offer one of the only viable pathways to increase early childhood funding in states with the greatest barriers to growing and sustaining early childhood funding. Those incremental dollars make the difference between children having or not having access to quality early learning, and, in some cases, whether child care providers open, stay in business, expand, or close.

• Second, there’s a basic inequity in excluding younger learners from programs that are intended to help parents make choices about and pay for their children’s learning. Many state ESA and private choice programs borrow from models that were initially created to help parents save and pay for college. There’s long been an inequity between the robust support state and (especially) federal policies provide families to save, borrow, and pay for college and the much more limited assistance available for early care and education—even though childcare costs as much as or more than public college in most states. As similar funding models extend to support K-12 school choice, the inequity of excluding early learning becomes even more glaring. If early childhood advocates want greater equity in public funding between the youngest children and their school-aged siblings, they should be arguing for the inclusion of early childhood in new education choice programs.

• Third, choice-oriented funding models are a good fit for early childhood, where parents have always had a range of choices, and most child care providers are private businesses and non-profits.

So why haven’t early childhood advocates been more engaged on these issues?

• First, some early childhood advocates just don’t pay that much attention to K-12 education policy. Policies related to public school delivery, governance, and funding often have major implications for early childhood, however, particularly in the context of constrained state finances where legislators have to make trade-offs between spending on different priorities and needs.

• Second, many early childhood advocates avoid engaging on school choice policy or working with school choice advocates because they view themselves as part of a broader coalition of advocates for education, children, and human services spending that includes public school teachers unions, district administrators, progressive organizers, and other groups that tend to strongly oppose private school choice. That’s a completely reasonable political judgement: Because a limited number of families have young children at any time, and the issue saliency of early childhood is low for most voters, early childhood advocates are most likely to succeed when they operate in coalition with other interests that have a larger base of political power. In many states, teachers unions and other progressive and public education interests have more political power than school choice advocates. But that’s not the case everywhere, particularly in states where ESAs and other choice initiatives are gaining the most ground. Advocates operating at the state level should ask themselves whether the benefits of working with school choice advocates to incorporate early childhood in ESA, tax credit, and other programs outweigh the political downsides. Two additional, related thoughts:

  • Public school advocates and interests should also consider that, in places where ESAs and tax credit initiatives are going to move forward no matter what, including early childhood in these programs could actually benefit public schools, either by enabling children to access preK services that public schools lack funding and capacity to provide or by reducing the number of school-aged children using these programs to exit public schools.

  • This New York Times article about Texas’ ESA program and high demand from families to use it for preK illustrates the complex dynamics at play here.

• Third, some early childhood advocates don’t want to engage with ESA or tax credit programs because these models conflict with their long-term vision for what progress on early childhood should look like. If your goal for early care and education is a universal system that is funded similarly to public schools and offers the same guaranteed access for young children as public schools do for older students, then ESAs and tax credits are a step in the wrong direction. This is one reason why, for example, early childhood advocates and leaders were less than enthusiastic about other OBBBA provisions that dramatically expanded child care tax credits. Those changes could unlock $16 billion in additional funds for child care—but because those funds flow through the hands of parents and employers, advocates who want a system where government pays providers directly don’t count them as a win.

Everyone’s entitled to make their own political judgements and follow their own ideological convictions. But early childhood advocates, who tend to skew left of the elected officials they seek to influence, can make the greatest headway when they promote solutions that meet policymakers halfway—even if the resulting policies don’t fully match their ideal state. Both Elliot Regenstein and former Ohio legislator Shannon Jones have made this point compellingly based on their own experience as state policymakers and advisers to policymakers and advocates in multiple states. In the current political and fiscal climate, it’s shortsighted to take school choice programs off the table as a potential source of new early childhood funding. As I’ve argued previously, making progress in this landscape will require new ideas and willingness to think creatively about outside the box solutions. Millions of children and families need help now—and if this is the path to get help to at least some of them, it’s worth exploring.

The FSTC guidance Treasury will formalize later this year presents one clear and tangible opportunity. Many K-12 analysts believe the guidance landed in the right place by clearly stating that public school students can be eligible for scholarships, and that scholarships can be used to cover a variety of education-related expenses for children enrolled in public schools. But there’s also a big missed opportunity here.

As noted above, federal law clearly limits eligibility for FSTC to students “eligible to enroll in a public elementary or secondary school,” which rules out a lot of early childhood uses. But there are a lot of states where at least some 3- and 4-year-olds are eligible to enroll in preK in public elementary schools! 44 states and the District of Columbia have public preK programs, and nearly all of these states serve at least some children in public schools. The states with the largest public pre-K enrollment—Texas and California, serving a combined more than half million children in state-funded preK—primarily serve students in public school settings. Children ages 3 and 4 who would otherwise be eligible to attend preK offered by public schools should also be eligible to receive FSTC. Period.

Yet the guidance Treasury put out in June appears to exclude such students, referring instead to “K-12 students” and expenses incurred as required by or in connection with attendance at a “K-12 public, private, or charter school.” “K-12” is frequently used as shorthand for “elementary and secondary schools,” but it’s not what the underlying statute says.

Treasury still has an opportunity to correct this before it issues final guidance later this Fall. That would mean a) clarifying that children who are otherwise eligible to enroll in a public elementary school (including in public preK offered by elementary schools) are eligible to benefit from FSTC, and b) clarifying that costs for a child, who is otherwise eligible to enroll in preK offered by a public elementary school, to attend preK operated by a private school or child care program qualify as educational expenses incurred in connection with attendance in a “public, private, or charter elementary or secondary school” for which FSTC funds may be used.

I would love to see both early childhood and school choice advocates at the federal level pushing for this clarification, which would both increase access to preK delivered through a choice-based system and build the base of political support for the program.

Longer-term, I would love to see federal advocacy to revise the underlying statute to allow scholarship granting organizations (SGOs) to offer FSTC for a wider range of early childhood care and education programs for children ages 0-5, and emergence of state- or national-level SGOs specifically focused on early childhood.

Building early childhood systems that truly work for children and families requires paying careful attention to intersections between early childhood and elementary and secondary education systems, including the evolving ways in which those systems incorporate a range of education options and ways of paying for them. System leaders and advocates who do so will be better equipped to seize opportunities created by those intersections, as well as to draw on lessons from evolving elementary and secondary systems to improve early childhood access and outcomes for children and families.