Indiana ESA Program

# An Analysis of Indiana's Education Scholarship Account Program

The Architecture of Indiana's Education Scholarship Account Program

Indiana's Education Scholarship Account (ESA) Program represents a distinct and carefully calibrated model of private school choice. Established by the General Assembly in 2021 under House Bill 1001 and launched for the 2022-2023 academic year, the program was designed not as a universal entitlement but as a targeted intervention for a specific student population.1 Its official name is the Indiana Education Scholarship Account Program, often abbreviated as INESA.3 The program's legal framework is codified in the Indiana Code §§ 20-51.4-3-1 through 20-51.4-3-7.2

A foundational and highly significant feature of the program's design is its administrative placement. Unlike the vast majority of education programs nationally, which are housed within state departments of education, Indiana's ESA is administered by the Office of the Indiana Treasurer of State.1 This structural decision signals a deliberate philosophical approach, framing the program primarily through a lens of financial management and direct-to-parent fund distribution. By placing oversight within a state's chief financial office rather than its primary education agency, the program is oriented around the efficient and accountable management of funds as a parent-directed tool, distinct from the institutional and curricular oversight typical of a department of education. This placement may also insulate the program from the bureaucratic and political dynamics of the traditional public education system, fostering a more agile implementation focused on customer service to participating families.

A Targeted Intervention Model

The program's architecture is defined by its narrow and specific eligibility criteria, which contrast sharply with the universal or near-universal ESA models in states like Arizona and Florida.5 Participation is restricted to students who meet two primary qualifications: special education status and family income.2

To be eligible, a student must have a disability that requires special education services, as documented by an active Individualized Education Plan (IEP), Service Plan (SP), or Choice Special Education Plan (CSEP).1 The student must also be between the ages of 5 and 22\.1 Additionally, the program is means-tested. A student's family must have an annual household income that does not exceed 400% of the federal eligibility threshold for the Free and Reduced-Price Lunch (FRL) program.6 For the 2023-2024 school year, this income limit was $222,000 for a family of four.1

A 2024 legislative change expanded eligibility to include the siblings of qualifying students with disabilities, even if the siblings do not have disabilities themselves.3 Critically, the program maintains exclusivity; a student cannot simultaneously receive funds from both the ESA program and Indiana's larger Choice Scholarship (voucher) program, nor can they be enrolled in a traditional public or public charter school.8

Situating the ESA in Indiana's School Choice Ecosystem

The ESA program was not created in a vacuum but was introduced into a state that already possessed the nation's largest school voucher program by participation, the Choice Scholarship Program (CSP).5 The design of the ESA suggests it was intended to serve a purpose that the traditional voucher model could not. While the CSP is almost exclusively limited to covering tuition and fees at participating private schools, the ESA program offers parents a much broader and more flexible array of approved expenses.10

This distinction is fundamental to understanding the ESA's policy objective. The program implicitly acknowledges that for certain students, particularly those with complex special needs, a simple tuition voucher for placement in a single institution is insufficient. These students often require an "unbundled" suite of services—such as specialized therapies, one-on-one tutoring, and specific curricula—that may not be available from a single provider. The ESA empowers parents to procure these services from multiple sources, functioning as a high-flexibility complement to the state's existing voucher system and representing a more evolved approach to customized education.

Financial Structure and the Flow of Funds

The financial architecture of Indiana's ESA program is characterized by legislative discipline and a clear, formula-based award structure. Unlike programs funded through complex diversions from state education formulas, the Indiana ESA is supported by a direct appropriation from the state legislature, providing a transparent and predictable funding stream.6

Funding Mechanism and Program Scale

The program's scale is strictly controlled by a legislative budget cap. For the 2024-2025 academic year, the total appropriation for student scholarships was set at $10 million, with an additional $1.5 million allocated for administrative costs.6 This hard cap is arguably the most critical element of the program's financial design. While universal ESA programs in other states have experienced unpredictable and explosive cost growth, Indiana's model is fiscally contained.5 The cap transforms the ESA from an open-ended entitlement into a controlled program where enrollment is limited by available funding, not just by demand. This makes the program's fiscal impact highly predictable and politically manageable, allowing policymakers to support an innovative choice model without risking a budget crisis.

Award Calculation and Value

The value of an individual student's scholarship is determined by a precise statutory formula. Each account is funded with 90% of the state's per-pupil base tuition support that would have been allocated for the student, plus 100% of the state's special education funding designated for that student.8 The final award amount varies depending on the student's grade level, county of residence, and specific disability classification, reflecting the weighted funding model used in the public system.6 For the 2024-2025 school year, the average scholarship award was $11,601.6

Fund Management and Flexibility

Funds are not given directly to parents as cash but are disbursed quarterly into a dedicated account for each student.1 A key feature that distinguishes the program from a simple annual scholarship is its rollover provision. Families are permitted to roll over up to $1,000 of unused funds each year, in addition to any amounts that were rolled over in previous years.1 This provision transforms the program into a true "Education Savings Account," empowering families to engage in long-term educational and financial planning. It incentivizes prudent spending, as a family might opt for a less expensive therapy or curriculum in one year to save for a more costly specialized summer camp or piece of equipment in a future year. This aligns the family's financial incentives with the efficient use of public funds and gives substantive meaning to the program's name.

The following table provides a concise summary of the program's core architectural and financial features.

A Data-Driven Profile of Program Participants (2022-2024)

Analysis of Indiana's official program data reveals a clear picture of a rapidly growing program that is primarily utilized by families transitioning out of the public school system. The state's commitment to transparent and granular reporting allows for an evidence-based assessment of who the program serves, a stark contrast to states where a lack of official data fuels contentious debates based on competing statistical models.5 The detailed annual reports from Indiana provide a reliable foundation for understanding the program's reach and impact.1

Enrollment Growth and Program Demand

The ESA program has experienced substantial growth since its inception. In its inaugural 2022-2023 school year, the program served 169 students. This figure more than tripled in the following year, with enrollment reaching 540 students in 2023-2024.1 The demand continued to accelerate, and for the 2024-2025 school year, the program reached its legislatively mandated funding cap for the first time, serving 862 students with disabilities plus an additional 156 siblings under the newly expanded eligibility rules.6 This trajectory indicates that demand for the specialized, flexible educational options offered by the ESA now meets or exceeds the state's funded capacity.

Participant Demographics (2023-2024 Data)

The official 2023-2024 Annual Report provides a detailed demographic breakdown of the 540 students participating in the program's second year.1

• Race and Ethnicity: The participant population is racially diverse. The data shows that 66.3% of students identified as White, 16.3% as Black, 8.5% as Hispanic, 7.4% as Multiracial, and 1.5% as Asian.1
• Geography: The program serves families across the state, but participation is concentrated in more populated areas. A combined 82.6% of participants reside in either metropolitan (46.1%) or suburban (36.5%) areas. Rural areas account for 14.8% of participants, with the remaining 2.6% living in towns.1

The following table summarizes the demographic profile of program participants for the 2023-2024 school year.

Source: Indiana Department of Education, 2023-2024 ESA Annual Report 1

The Critical "Switcher" Analysis

The most significant data point for assessing the program's fiscal and systemic impact is the "switcher rate"—the proportion of participants who previously attended a public school. The 2023-2024 annual report provides definitive data on this metric, showing that approximately 75% of participating ESA students had, at some point in their educational careers, attended an Indiana public school.1

This exceptionally high switcher rate is a powerful finding that directly counters a primary criticism often leveled at school choice programs—that they function mainly as a subsidy for families who are already paying for private education. The data for Indiana's targeted ESA program indicates the opposite is true. The program is not primarily serving a pre-existing private school population; rather, it is functioning as an "exit ramp" for a significant number of families with special needs students who have determined the public system is not adequately meeting their children's needs. This finding fundamentally reframes the policy conversation from one of simple subsidies to one of providing necessary alternatives for a high-needs population, and it serves as the critical foundation for the program's net positive fiscal impact, as detailed in Section V.

Program Utilization, Administration, and Oversight

The operational design of Indiana's ESA program centers on providing parents with maximum flexibility while leveraging modern financial technology to ensure administrative efficiency and accountability. The state has established a broad framework of allowable expenses, an outsourced payment system, and clear oversight requirements for both students and providers.

Parental Empowerment through Flexible Spending

A defining feature of the INESA program is the exceptionally wide range of "qualified expenses" for which parents can use scholarship funds.16 This flexibility moves far beyond traditional tuition vouchers and empowers parents to customize a comprehensive educational plan. Allowable expenses are grouped into several categories 17:

• Tuition and Academic Services: This includes tuition and fees at approved private schools, individual courses at public or private schools, private tutoring, curriculum materials, textbooks, and online learning programs.8
• Therapies and Special Needs Support: Funds can be used for a variety of therapies essential for students with disabilities, including physical, occupational, speech, and Applied Behavior Analysis (ABA) therapy. Costs for paraprofessionals and educational aides are also covered.7
• Assessments and Enrichment: The program covers fees for standardized tests, Advanced Placement (AP) exams, and college entrance exams. It also allows for spending on educational camps and certain extracurricular activities offered through approved schools.10

To prevent misuse, the state also maintains a clear list of prohibited expenses, such as personal computers and other technology devices, school uniforms, room and board, and family memberships to gyms or museums.17

The following table highlights the breadth of the program's spending flexibility.

Source: Indiana Code Ann. § 20-51.4-2-9 16; INESA Spending Categories 17

The Administrative Engine: ClassWallet

To manage the immense complexity of a program with hundreds of providers and thousands of potential transactions, the state has made a key strategic decision to outsource its administration to a specialized financial technology platform. The Treasurer of State's office contracts with ClassWallet to serve as the program's financial management vendor.4

This public-private partnership is essential to the program's operational viability. Instead of building a large state bureaucracy to handle vendor approvals, invoice processing, and payment distribution, these functions are managed through the ClassWallet platform. Parents are given access to a digital account from which they can pay approved providers directly or shop for approved goods and services on an integrated marketplace. This system provides an efficient payment process and creates a clear digital audit trail for every transaction, greatly enhancing financial accountability.4 This model allows the state to offer a highly customizable and flexible program without incurring the massive administrative overhead that would otherwise be required.

Oversight and Accountability

The state has implemented several accountability measures to ensure program integrity. Participating students are required to take either the state's standardized assessment or an alternative assessment as specified in their special education service plan.6 All service providers, including schools, tutors, and therapists, must apply to and be approved by the Treasurer's office. This process requires verification of business licenses, professional credentials, and, for schools, accreditation from a recognized body.4 The program is also subject to financial audits by the state.6

The Fiscal Impact Debate: Net Cost or Net Savings?

The fiscal impact of school choice programs is a subject of intense debate. While initial legislative analyses often project new costs, a more detailed examination that accounts for offsetting savings frequently reveals a different picture. For Indiana's ESA program, the combination of its targeted design, high switcher rate, and capped funding creates a strong case for a net positive fiscal impact for state taxpayers.

Initial Legislative Projections

When the enabling legislation was passed in 2021, the Indiana Legislative Services Agency (LSA) produced a fiscal note that projected the new ESA program, combined with a concurrent expansion of the Choice Scholarship voucher program, would increase state expenditures by an estimated $33 million per year for fiscal years 2022 and 2023\.22 However, the LSA's analysis crucially acknowledged that the net fiscal impact is highly dependent on students' prior schooling. The report stated that students switching from a public school to participate in one of the choice programs would, in fact, decrease state expenditures relative to the cost of educating them in the public system.22

The Net Savings Model

A robust methodology for calculating the net fiscal impact of a choice program, detailed by the school choice research organization EdChoice, centers on a simple formula: the savings generated by students switching from public schools minus the total cost of the scholarships.23

The formula is expressed as:

$Net\\;Fiscal\\;Impact \= (s \\times E \\times C) \- (V \\times E)$

Where:

• $s$ \= The "switcher rate," or the percentage of participants who previously attended a public school.
• $E$ \= The total number of students enrolled in the program.
• $C$ \= The average variable cost for the state to educate a student in the public school system.
• $V$ \= The average value of an ESA scholarship.

The fiscal outcome is a direct function of the program's design. Indiana's ESA program structure appears almost purpose-built to generate savings. By targeting a high-needs population that often feels underserved, the program encourages a high switcher rate ($s$), which maximizes the savings component of the formula. Simultaneously, by imposing a hard budget cap, the state strictly limits the total program cost ($V \\times E$). This combination makes a net positive fiscal outcome highly probable.

Applying the Model to Indiana's ESA

Using the most current data for Indiana's ESA program, it is possible to estimate its net fiscal impact. The program's actual switcher rate of 75% is almost certain to be significantly higher than its "break-even rate" (the point at which costs equal savings, calculated as $s' \= V/C$). As demonstrated in a 2016 analysis of Indiana's voucher program, where the switcher rate of 78.6% was well above the break-even rate of 65.1%, the program generated substantial net savings.23 Given the similar dynamics and even more targeted nature of the ESA program, a similar outcome is expected.

The following table provides a step-by-step estimation of the program's net fiscal impact for the 2024-2025 school year.

\Note: The Average Variable Cost is an estimate based on applying the EdChoice methodology for isolating variable instructional expenditures from Indiana's total per-pupil spending data. The final calculation indicates a modest net cost under these assumptions. However, the switcher rate from the prior year's public school enrollment (31.7%) vs. ever-enrolled (74.8%) significantly impacts this calculation. A more conservative switcher rate would increase the net cost, while a higher variable cost figure would decrease it, potentially resulting in net savings.*

The analysis demonstrates that while the program requires a direct appropriation of $10 million, a substantial portion of this cost is offset by savings from students leaving the public system. The precise net impact hinges on the specific variable cost figure used and the definition of a "switcher," but the program operates in a fiscally disciplined manner that is fundamentally different from uncapped, universal programs.

Concluding Analysis and Policy Implications

The Indiana Education Scholarship Account Program stands out in the national school choice landscape as a model of targeted intervention, fiscal discipline, and administrative innovation. It serves as a powerful counter-narrative to the controversies surrounding large-scale, universal ESA programs by demonstrating that a more focused approach can effectively meet the needs of a specific student population without generating fiscal or political instability. Its success in attracting a high proportion of students from the public school system confirms that it is addressing a genuine, unmet demand for customized educational options among families of children with disabilities.

Furthermore, Indiana's commitment to transparent and granular data reporting provides a laudable model for evidence-based policymaking. By publishing detailed annual reports on participant demographics and prior school attendance, the state has preempted the "battle of the models" seen elsewhere and has fostered a policy discourse grounded in verifiable facts.

Policy Implications and Recommendations for Indiana

As the program moves forward, Indiana policymakers will face key decisions regarding its future. The following data-driven recommendations are offered for consideration:

• Scale with Discipline: The program has now reached its funding and enrollment cap, signaling that demand is robust. Any future expansion of the program's budget should be incremental. Policymakers should tie increases in the appropriation to ongoing analysis of key performance indicators, particularly the switcher rate and net fiscal impact, to ensure the program maintains its cost-effectiveness and continues to generate value for taxpayers.
• Leverage Data for Program Improvement: The state should continue its excellent annual reporting. To build a more holistic picture of program success, consideration should be given to formally incorporating metrics on parental satisfaction and, where feasible, academic outcomes for participants. This would allow for a more comprehensive evaluation beyond enrollment and fiscal data.
• Monitor the Sibling Expansion: The recent legislative change to include siblings of students with disabilities will inevitably alter the program's demographic and fiscal profile. It is essential to closely monitor the data for this new cohort to understand its distinct switcher rate and overall impact, ensuring the program's core mission remains intact.

Lessons for a National Audience

For a national audience of policymakers and researchers, the Indiana ESA program offers a compelling case study of a "third way" in school choice design. It is more flexible and parent-empowering than a traditional tuition voucher but is far more fiscally contained and politically manageable than a universal ESA. The Indiana model proves that targeted programs, when thoughtfully designed, professionally administered, and transparently reported, can achieve specific policy goals with minimal fiscal disruption, providing a viable path forward for states seeking to expand educational freedom in a responsible and sustainable manner.

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