Twisted Tax Laws Let Private Schools Rob the Poor to Aid the Rich

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Georgia charter schoolGrowing concern about the safety and quality of education in our public schools has led many parents to put their children in private schools. But what about poor families who lack opportunities to pursue better options?

To ensure underprivileged children have access to more education options, Georgia and several other states have passed private school scholarship programs. However, according to a recent New York Times story, some private schools are using these funds to discount tuition for current students instead of offering scholarships for students from low-income families.

More Tax Breaks for the Wealthy

Georgia attracts funding for its scholarship program by offering dollar-for-dollar tax credits to each family for donations up to $2,500. As a result, funds that would otherwise be owed to the state are redirected to private schools.

Lawmakers argued that these tax breaks would provide scholarships for students whose families cannot afford to send them to private school. However, not all scholarship programs seem to follow the same mission.

  • According to The New York Times, an administrator at Gwinnett Christian Academy told families that most of the money raised by these donations would be redirected back to the families of those who made the donations and that only "a very small percentage of that money" would be set aside for needy students.
  • A Southern Education Foundation report found that metropolitan areas containing most of the private schools covered by the scholarship program saw private school enrollment increase by only 0.3% from 2007 to 2009 (the year before and the year after the program started). In the rest of the state, private school enrollment increased by only 1.3%.
  • Some parents in Georgia took advantage of a language loophole -- the use of the word "enrolled" rather than "attending" -- in Georgia's scholarship bill in order to qualify for scholarship funds, according to the Southern Education Foundation report. This loophole allowed families to enroll their children in the public schools, even as they attended private schools, thus making them eligible for scholarship money.


Accountability Concerns

Some argue that these scandals are anomalies and that the scholarship fund is fulfilling its stated purpose of helping the needy. However, there are no data to support or refute that claim. And, Georgia's law doesn't include income limits to help ensure the scholarship fund fulfills its purpose of helping needy students.

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One useful way to measure the program's success would be to determine how many students switched to private schools after the creation of the program who would have been unable to do so without the scholarship money. However, when The New York Times requested this information, a policy analyst for the Georgia Department of Education indicated that they did not collect that data and did not regulate the use of those scholarship funds.

The issue is further complicated by the way these tax credits blur the line between public and private money. The funds are being collected and distributed by private foundations rather than the state, making it difficult to challenge their use from a constitutional standpoint. Funds that would have gone into public coffers instead go into private hands, and citizens have a limited ability to determine the appropriate use of what would otherwise have been state money.


Growing Movement

While the Times report highlights the scholarship programs in Georgia, Pennsylvania, and Arizona, other states have implemented similar programs, and several others are thinking about jumping on the bandwagon.

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Kiplinger's 10 Top Private Colleges With the Lowest Sticker Price
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Twisted Tax Laws Let Private Schools Rob the Poor to Aid the Rich

Total annual cost: $17,280

Cost after need-based-aid: $11,789

Average need-based-aid: $5,491

Average non-need-based aid: $3,436

Average debt at graduation: $13,354

This 136-year-old institution is open to members of the Church of Jesus Christ of Latter-day Saints (LDS) as well as non-members. In fact, BYU's total cost of $17,280, the lowest on Kiplinger's private-school list, applies to students who are not LDS church members; members pay about half the tuition. BYU attracts academically gifted students: 91% of incoming freshman scored 24 or higher on the ACT standardized test.

Total annual cost: $27,900

Cost after need-based-aid: $15,268

Average need-based-aid: $12,632

Average non-need-based aid: $18,887

Average debt at graduation: $20,896

Wesleyan earns plaudits as Kiplinger's lowest-cost liberal arts college. Founded in 1836, Wesleyan was the first college in the world to grant degrees to women. Today, Wesleyan has 31 major and 26 minor academic programs, as well as eight pre-professional programs, including engineering, medicine and law.

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Total annual cost: $28,790

Cost after need-based-aid: $21,465

Average need-based-aid: $7,325

Average non-need-based aid: $7,700

Average debt at graduation: $26,614

In the foothills of the Blue Ridge Mountains, overlooking the Shenandoah River, this Catholic liberal arts college, founded in 1977, attracts its 400-plus students from 45 states and seven countries. Undergraduates are required to take a core curriculum that covers literature, history, natural sciences and theology.

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Total annual cost: $29,490

Cost after need-based-aid: $22,605

Average need-based-aid: $6,885

Average non-need-based aid: $4,150

Average debt at graduation: $20,500

With a focus on global education through its numerous study-abroad programs, Drury provides the opportunity to explore diverse cultures and international issues firsthand. Its Global Perspectives 21 program includes such subjects as Asian ethics, Russian cultures (with travel to St. Petersburg, Russia) and Mediterranean cultures (via travel to Volos, Greece).

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Total annual cost: $29,520

Cost after need-based-aid: $20,994

Average need-based-aid: $8,526

Average non-need-based aid: $4,366

Average debt at graduation: $32,380

This private Catholic university, founded more than 60 years ago, attracts a high-achieving student body (65% of incoming freshman scored in the top tier of the ACT) and keeps them coming back. The freshman retention rate is a solid 88%. The university offers 42 undergraduate majors and 32 minors, plus seven graduate programs.

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Total annual cost: $30,370

Cost after need-based-aid: $17,647

Average need-based-aid: $12,723

Average non-need-based aid: $7,388

Average debt at graduation: $28,657

Established in 1920 as Marion College, Indiana Wesleyan is one of the fastest-growing Christian colleges in the country. The school’s main Marion campus has 3,200 students, and more than 12,000 adult students attend classes at regional campuses in Indiana, Kentucky and Ohio.

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Total annual cost: $30,410

Cost after need-based-aid: $23,580

Average need-based-aid: $6,830

Average non-need-based aid: $9,873

Average debt at graduation: $18,850

Hillsdale’s campus stretches over 200 acres in southern Michigan. The liberal arts college prides itself on offering high-quality academics without accepting federal or state taxpayer subsidies. An impressive 90% of incoming freshmen scored in the top tier of the ACT, and a low student-faculty ratio (10-to-1) helps keep students engaged with professors.

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Total annual cost: $30,850

Cost after need-based-aid: $16,300

Average need-based-aid: $14,550

Average non-need-based aid: $0

Average debt at graduation: $16,311

Only 355 students are enrolled at this Catholic liberal arts college, and the 11-to-1 student-faculty ratio helps keep class sizes small. Founded in 1971 and located 65 miles northwest of Los Angeles, Thomas Aquinas provides grants and loans through its financial aid program, but it accepts no government or archdiocesan subsidies.

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Total annual cost: $31,678

Cost after need-based-aid: $25,051

Average need-based-aid: $6,627

Average non-need-based aid: $11,833

Average debt at graduation: $23,404

Located near Boise, the College of Idaho stresses the importance of off-campus experiences, from internships and community service to study-abroad programs. Students are also encouraged to become leaders, through the college’s leadership program. Under this hands-on, freshman-to-senior program, students develop skills in communication, problem solving, decision-making and team development, enabling them to become mentors to younger classmates by the time they graduate.

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Total annual cost: $31,830

Cost after need-based-aid: $19,890

Average need-based-aid: $11,940

Average non-need-based aid: $10,445

Average debt at graduation: $23,500

This liberal arts university, less than 50 miles southeast of Topeka, offers more than 40 fields of study and more than 70 extracurricular and co-curricular activities, from honor societies to varsity athletics. Fewer than 1,000 undergraduates attend the school, whose alumni include four Rhodes Scholars and a Pulitzer Prize winner.

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Concern about the quality of education in our public schools is understandable, but the question remains -- do these private school scholarship programs fix the underlying problems with our children's education?

Motley Fool contributor M. Joy Hayes, Ph.D. is the principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter.

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