Interactive Tool Shows States at Risk of Losing Billions in Education Funds

States Risk Losing $23 Billion by Opting Out of Education Freedom Tax Credit, Analysis Shows

States that decline to participate in the Education Freedom Tax Credit (EFTC) program could forfeit nearly $23 billion in education funding over the next three years, according to a new analysis from the America First Policy Institute (AFPI).

To highlight these potential losses, AFPI is launching an interactive Funding Loss Calculator that demonstrates how much education funding each non-participating state stands to lose in charitable donations tied to the federal tax credit program.

“We wanted to make sure that governors know and especially, the people in the states know, what is being foregone if they do not opt in to this federal tax credit scholarship program,” said Erika Donalds, chair of educational opportunity at AFPI.

The projections estimate that 23 states could miss out on nearly $23 billion between 2027 and 2029, equivalent to more than 4.1 million lost scholarship opportunities for students across the country. So far, 28 governors have opted into the program, leaving almost half of states still undecided.

Under the EFTC policy, taxpayers can receive up to $1,700 in dollar-for-dollar federal tax credits for donations to scholarship-granting organizations. These organizations fund a variety of K-12 education expenses, including private school tuition, homeschooling resources, tutoring services, and special needs support. However, only students in participating states are eligible to benefit from these scholarships.

The mechanism of the program creates an unusual dynamic: taxpayers in states that opt out can still claim the federal tax credit, but their contributions will be redirected to scholarship organizations in participating states. This effectively results in education dollars flowing out of non-participating states and into those that have joined the program.

“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 explained, emphasizing that the funds come from private donations rather than state budgets.

The new calculator tool allows users to model different participation rates and view projected funding losses on a state-by-state basis. The interactive nature of the tool aims to make the data more accessible to policymakers and concerned citizens as governors make their decisions about joining the program.

The EFTC represents one of the most significant federal school choice initiatives in recent years, arriving amid growing demand for educational alternatives. Donalds pointed to overwhelming interest in existing state-level school choice programs as evidence of public appetite for more educational options.

“Every parent deserves to make education decisions on behalf of their children. We have seen state after state where parents are begging for school choice options,” she said. “In Texas, in just one month, 250,000 applicants for a school choice program that is only going to accommodate about 80,000 students. In Tennessee, over 50,000 applications for a program that accommodates 20,000 students. There should not be wait lists on education freedom.”

The timing of this analysis comes as education policy remains a divisive issue across the country. Supporters of the EFTC argue it expands educational opportunities for families without draining state education budgets. Critics of similar programs have raised concerns about the diversion of resources away from public schools and questions about oversight of private educational options.

As governors continue to deliberate on participation, the potential economic impact highlighted by the AFPI’s analysis adds a significant financial dimension to what was already a contentious education policy debate.