Private school voucher programs are becoming more common, with more than a million U.S. families participating in these programs across the country. These programs are designed to provide more options for students and their parents -- the option of attending the school of the student's choice.
But as these vouchers gain popularity and the financial implications become more complicated, one question remains: Does the money spent by these programs ultimately go to poor families, wealthy families whose children would have attended private schools anyway, or to the schools' bottom lines?
A new National Bureau of Economic Research working paper, "Where Does Voucher Funding Go? How Large-Scale Subsidy Programs Affect Private-School Revenue, Enrollment, and Prices," authored by Daniel Hungerman, associate professor of economics at the University of Notre Dame, and graduate student Kevin Rinz, provides the first study of how school choice programs affect the finances of private schools and the affordability of a private education.
The study, funded by the John Templeton Foundation, used a largely overlooked set of data -- nonprofit tax returns filed by private schools. Combining this data with information on school laws, Hungerman and Rinz conducted a statistical analysis.
The bottom line? School choice programs raise a lot of money for schools. In fact, in the states studied in the NBER working paper, which studied approximately 20 percent of all U.S. private school enrollment, hundreds of millions of dollars were raised through the voucher programs.
"We find that subsidy programs created a large transfer of public funding to private schools, suggesting that every dollar of funding increased revenue by a dollar or more," says Hungerman.
But the way a program is crafted matters. For example, some programs are available only for disabled or low-income students.
"Programs restricting eligibility to certain groups of students increase enrollment in private schools, but do not significantly raise the cost of private schools," says Hungerman. "On the other hand, programs without any restrictions see no change in enrollment, and yet these private schools still increase their tuition when the voucher is introduced."
The paper also calculates elasticities of demand and supply for private schools, and discusses welfare effects. The full study is available on the National Bureau of Economic Research site.