Iowa Increases Scholarship Tax Credit Cap by $2 million

Published September 30, 2019

More Iowa children will be able to attend private schools of their choosing next year, as the state has increased its tax credit cap for donations to groups that provide scholarships for students.

Trish Wilger, executive director of the Iowa Alliance for Choice in Education, welcomes the 15 percent increase in tax credits for donations to school tuition organizations (STOs).

“We are thrilled that the legislature passed—and the governor signed—a tax bill containing an increase to the School Tuition Tax Credit program, which will now be capped at $15 million beginning in 2020,” Wilger said.

Gov. Kim Reynolds signed the bill (H.F. 779) into law on May 16.

Providing Tuition Grants

STOs are charitable organizations that receive donations from individuals and businesses to provide scholarships for students from low- and middle-income households to attend accredited private schools.

Taxpayers that donate to STOs are eligible to receive a credit against state income tax owed for up to 65 percent of their total contribution. Contributions may also be deductible on federal income tax returns.

A participating STO must represent more than one school and put 90 percent or more of its total revenue into tuition grants for eligible children. A student’s family income must be no more than 400 percent of the federal poverty level. The average scholarship amount in 2019 is $1,614, which may be used at any one of 145 participating schools.

Making ‘Significant Progress’

The additional credits will enable STOs to fund more scholarships, Wilger says.

“In 2018 and years prior, where we had a $12 million cap, the STO program was able to serve just under 11,000 students,” Wilger said.

“Based on that history, with a cap of $15 million in 2020, we project that the STO program could serve approximately an additional 2,000 to 3,000 students, which makes significant progress in meeting the needs of those waiting for assistance,” Wilger said.

Expanding Options

The tuition tax credit budget expansion could influence school choice policies elsewhere, Wilger says.

“Iowa’s successful School Tuition Organization program could encourage other states to follow suit in creating this option for parents,” Wilger said.

Iowa legislators are proposing additional choice programs. Iowa Senate President Pro Tem Jerry Behn (R-Boone) introduced a bill (S.F. 372) that would establish a state fund to make “education savings grants for pupils attending a nonpublic school or receiving competent private instruction,” on February 25.

The bill was approved by the Senate Education Committee on March 7, but no further action was taken before this year’s session of the General Assembly adjourned. K-12 students who have an Individualized Education Program or a disability would be eligible for the grants.

Advocating ESAs

Other tuition grant programs could have an even wider impact, Wilger says.

“Education savings accounts would have the greatest potential to create broad-based, transformative change in the school choice arena while putting parents in the driver’s seat,” Wilger said.

“Depending on program design, parents would have the greatest access to all educational options and total freedom of choice when it comes to their child’s education provider,” Wilger said.

Offering ‘The Perfect Complement’

An ESA program would provide more options to more Iowa families, says Tim Benson, a policy analyst at The Heartland Institute, which publishes School Reform News.

“Education savings grants would be the perfect complement to Iowa’s other school choice program, the School Tuition Organization Tax Credit, which was designed specifically for low-income families,” Benson said.

These more expansive choice programs are politically more difficult to enact, Wilger says.

“Tax credit programs traditionally garner more bipartisan support than programs like vouchers or education savings accounts, and they are easier to budget for, from the state legislature’s perspective,” Wilger said.

Cassidy Syftestad ([email protected]) writes from Washington, D.C.

Official Connections:

Iowa Gov. Kim Reynolds:

Iowa Senate President Pro Tem Jerry Behn (R-Boone):

Internet Info:

Tim Benson, “Research & Commentary: The Time Is Now for Universal ESAS in Iowa,” The Heartland Institute, March 8, 2019:–commentary-the-time-is-now-for-universal-esas-in-iowa

Iowa Alliance for Choice in Education: