The Education Freedom Scholarship Act: Requirements and Implications

The Education Freedom Scholarship Act (EFA) is a newly enacted law in Tennessee that introduces a statewide school choice program alongside additional investments in public education. This article delves into the requirements, limitations, and potential impacts of the EFA, providing a comprehensive overview for parents, educators, and policymakers.

Background and Legislative History

The Education Freedom Act of 2025 (EFA) was a primary focus of the First Extraordinary Session of the 114th Tennessee General Assembly, convened by Governor Bill Lee in January 2025. The EFA aims to provide eligible students with annual grants to cover tuition and other expenses at a private K-12 school of their choice. The Tennessee General Assembly passed the Tennessee Education Freedom Act during the special legislative session in January 2025. On Feb. 12, Gov. Lee signed the Education Freedom Act of 2025 into law.

In 2019, Tennessee established the Education Savings Account (ESA) program, initially available to eligible students in Davidson and Shelby Counties. Eligibility was expanded to include Hamilton County in 2023. Governor Lee proposed expanding school choice grants statewide through a new Education Freedom Scholarship (EFS) plan in 2024. Although the 113th General Assembly did not enact the EFS plan due to disagreements on the final version, the EFA ultimately passed on January 30, 2025.

Core Provisions of the Education Freedom Act

The EFA's central component is a state-funded scholarship program offering annual grants to eligible students for private K-12 education. The Tennessee Education Freedom Scholarship Act is funded by a one-time appropriation of $144,200,000 of general revenue funds.

Scholarship Amounts and Funding

Initially, each scholarship is set at $7,296 for the 2025-2026 school year, mirroring the state's current annual per-student base payment to public school districts under the Tennessee Investment in Student Achievement (TISA) funding formula. Each student in the program will receive a scholarship with an amount equal to the base formula funding amount under the Tennessee Investment in Students Achievement (TISA) formula. Future scholarship amounts will increase in accordance with TISA's base payment increases. The new scholarships will be funded with state general fund revenues.

Scholarship Availability and Prioritization

In the program's inaugural year (2025-26 school year), a maximum of 20,000 scholarships will be awarded. Enrollment Cap: 20,000 students for year one. Half of the scholarships (Qualified Scholarships) will go to students living in households with an annual income less than 300% of the level to qualify for the federal free and reduced-price lunch program, an estimate of $173,160 for a family of four. Up to 10,000 of those initial grants are reserved for students who are eligible either for the existing ESA program or for the Individualized Education Account program, or whose annual household income is 300% or less of the amount required to qualify for free or reduced-price lunch. The remaining scholarships are available to any student who meets the EFA application requirements, regardless of income.

In 2026 and beyond, the program will grow by 5,000 scholarships each year if the number of students enrolled in the program exceeds 75% of the scholarships available the prior year. If at least 15,000 scholarships are awarded in 2025, the program must offer 25,000 scholarships for the next year.

If the number of applicants exceeds the number of scholarships available, an additional priority system is followed. First in line are students who received a scholarship the previous year. Next are students from households with income at or below 100% of the amount required to receive free or reduced-price lunch. Next are students from households whose annual income is at or below 300% of the amount required to receive free and reduced-price lunch. Next is a student who was currently enrolled in a public school or is eligible to enroll in kindergarten.

Permissible Use of Funds

Funds must first be used for tuition and fees at a private school. Eligible students receiving an EFA scholarship will be required to apply their award first toward paying for tuition and fees at a category I, II or III private school. If there are additional funds remaining, participants are free to use those funds on approved expenses like textbooks, curricula, uniforms, tutoring services, transportation, technology and computer hardware, college entrance exams, educational therapy, and expenses associated with summer academic programs and afterschool academic programs. After tuition, leftover scholarship funds can be used to pay several other types of expenses - including transportation, tutoring, special education services, books and uniforms and other required materials, technology purchases for school use, qualified costs of summer and afterschool academic programs, and certain workforce-training and college entrance exam costs. Additionally, students can utilize these funds for Tennessee’s early postsecondary opportunity courses and industry credentials.

Eligibility and Application Requirements

To get an EFA scholarship, eligible students/parents will be required to:

Submit a completed application to the TN Dept. of Education. The Tennessee Department of Education will launch the program in May. On April 10, the Tennessee Department of Education released the Education Freedom Scholarship Program student application checklist and encouraged interested families to begin gathering required documentation to submit when the application launches in May. The department will announce the program’s launch date in the coming weeks.
Ensure the student's education meets state compulsory school attendance requirements through enrollment in a private school.
Not enroll the student in a public K-12 school for the year in which they get an EFA award.

Eligibility is universal in 2025, but the first 10,000 scholarships are reserved for students in family households with annual incomes below 300% of the federal free-and-reduced-lunch guidelines, are already eligible to participate in Tennessee’s existing educational choice programs, and/or have one or more state-recognized disabilities.

Private School Categories and Requirements

Tennessee has five categories of private schools-each with different requirements for accreditation, approval, curriculum, testing, and teacher qualifications. Table 1 provides a high-level overview of the requirements associated with each category. Category I, II, and III schools are subject to the most requirements. Category IV church-related schools have fewer, and Category V schools are often in the process of meeting the requirements of one of the other categories. Scholarships are limited to students enrolled only in Category I, II, and III private schools. The state’s existing ESA program is similarly limited to Category I, II, or III schools, but schools must apply to receive ESAs. As of January 2024, about 11% of the state’s private schools were approved to receive ESA funds (Figure 2).

Homeschooling Considerations

Home-schooled children can fit into more than one category of nonpublic schools. Independent home schools are those in which a parent or guardian is teaching their children. However, many home-schooled children may also be enrolled in Category III and IV private schools. Homeschooled students and current ESA pilot program participants are not eligible to receive EFA scholarships. may also not be approved to receive an EFA award.

Testing and Accountability

Each year, EFA recipients in grades 3-11 will be required to take either the state TCAP tests for math and English, or a national standardized achievement test. Private schools will then have to report their EFA students' test data to their parents, and also to the Office of Research & Education Accountability (OREA), part of the office of the state Comptroller of the Treasury. The OREA must then report on the test results each year to the General Assembly's House and Senate Education Committees.

Limitations and Considerations

EFA scholarship recipients can use their awards to pay for the costs of attending a category I, II or III private K-12 school, but not another public school. EFA scholarship recipients do not retain their right to receive special education services from the public school district in which they live. They do, however, have the same rights as all other students enrolled in non-public schools to receive equitable services through an individualized service plan, under the federal Individuals with Disabilities Education Act."

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Impact on Public Education

The EFA also includes additional state investments in public education:

It includes a one-time, state-funded $2,000 bonus to be paid to each person who is a Tennessee K-12 public school teacher for 2024-25 school year.
It also creates a new School Building Improvement Fund to support K-12 public school construction and maintenance, funded by reallocating 80% of the state's online sports-betting tax revenues that are currently deposited each year into the state’s Lottery for Education college-scholarship account.

"Hold Harmless" Provision

Under the EFA, public school districts which experience disenrollment are to be “held harmless.” "Disenrollment" occurs when a public school district's student population drops from one year to the next, after students use EFA awards to depart the district to attend a private school. The EFA calls for the state to give each affected public school district additional funding, to make up for that which they stand to lose resulting from a decline in their total student population = enough to bring their annual TISA allocation back up to its level the previous year.

Cost Estimates and Fiscal Impact

The Fiscal Note for HB6004/SB6001, produced by the General Assembly’s Fiscal Review Committee staff and updated on Jan. 28, appears to estimate the state's total first-year EFA costs - including changes in the Jan. 28 amendment - at just over $409 million. About $347 million of that total will be new spending from the state's general fund, with another $62.7 million transferred out of the state Lottery for Education Fund and into the new public school district construction and maintenance fund. For subsequent years, the fiscal note estimated the EFA's annual cost to the state at just under a net of $211 million per year.

In addition to the new state spending, the Fiscal Note estimated that Tennessee's local governments (which fund the share of their public school districts' budgets not covered by state dollars) may collectively need to spend $62 million under the EFA in its first year (FY25-26). In subsequent fiscal years, local governments' total annual net spending increases were estimated in the Fiscal Note to decline to about $19.6 million for FY26-27, before edging slightly downward in subsequent fiscal years. The cost estimates in the Fiscal Note on the EFA derive from numerous assumptions made by the professional staff of the General Assembly's Fiscal Review Committee. Such estimates and assumptions are based on a host of information, including but not limited to the text of each proposed bill and its amendments, existing laws, past and current state budgets and appropriations, and available data about similar programs which have been adopted by other states.

Private School Landscape in Tennessee

Tennessee had 626 private schools in 76 counties (and 95 school districts) with over 154,000 K-12 students as of January 2024. These counts include an uncertain number of out-of-state students enrolled in virtual/satellite options, attending boarding schools, or commuting from other states. In 2022, private or home schools enrolled as many as 172,000 Tennessee kids (or about 16%), according to Census Bureau estimates. A study by the Urban Institute estimated that about 98,500 (or 9%) were enrolled in private schools in the Fall of 2021, and another 13,600 (or 1%) were in home schools. Although they may be imprecise, Census estimates provide a general picture of trends and geographic differences in nonpublic school enrollment in Tennessee. For example, the number and percentage of private and home school students in Tennessee have increased steadily since 2015 - with significant increases during the pandemic and a slight dip in 2022 (Figure 5).

The Education Savings Account (ESA) Program

The Education Savings Account (ESA) program is separate from Education Freedom Scholarships. It was enacted in 2019 and first became available to students in the 2022-2023 school year. Tennessee also has a similar Individualized Education Account (IEA) program for students with disabilities. ESA eligibility is restricted to students whose family income meets certain guidelines and are zoned for one of four districts that meet specific school performance criteria. Family incomes are capped at twice the eligibility level for the free lunch program-which is about $82,000 for a family of 4 for the 2024-2025 school year. ESA school district criteria translate to only three local education agencies-the Metro Nashville-Davidson County, Memphis-Shelby County School, and Hamilton County Districts.

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