Economist and Nobel laureate Milton Friedman proposed in 1955 using free market principles to improve the United States public school system. The practice had been that children were assigned a public school based on where their parents live, which public schools were funded by state and local taxes. Friedman proposed that parents should be able to receive those education funds in the form of vouchers, which would allow them to choose their children's schools, including both public and private, religious and non-religious options. In 1996, Friedman and his wife economist Rose Director Friedman founded the Friedman Foundation for Educational Choice, (now EdChoice). This American education reform organization headquartered in Indianapolis, Indiana seeks to advance “school choice for all children” nationwide.
The first use of school vouchers in the United States came in the form of state tuition grants provided by Virginia's 1956 Stanley Plan, which financed white-only private schools known as segregation academies. Other states followed until the practice was disallowed by Griffin v. County School Board of Prince Edward County (1964). While school choice has always implied school improvement, debates have regularly followed about the motivation and implementation.
States with scholarship tax credit programs grant individuals and/or businesses a credit, whether full or partial, toward their taxes for donations made to scholarship granting organizations (also called school tuition organizations). SGOs/STOs use the donations to create scholarships that are then given to help pay for the cost of tuition for students. These scholarships allow students to attend private schools or out-of-district public schools that would otherwise be prohibitively expensive for many families. These programs currently exist in fourteen states: Alabama, Arizona, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Minnesota, New Hampshire, Oklahoma, Pennsylvania, Rhode Island, and Virginia in the United States.
In a traditional public education system, schools receive funding from the state on a per student basis. Under a voucher system, eligible students receive state funding ("vouchers") which can be spent at whatever eligible private schools the parents choose for their children. The two most common voucher designs are universal vouchers and means-tested vouchers. Means-tested vouchers are directed towards low-income families and constitute the bulk of voucher plans in the United States.
Charter schools are independent public schools which are exempt from many of the state and local regulations which govern most public schools. These exemptions grant charter schools some autonomy and flexibility with decision-making, such as teacher union contracts, hiring, and curriculum. In return, charter schools are subject to stricter accountability on spending and academic performance. The majority of states (and the District of Columbia) have charter school laws, though they vary in how charter schools are approved. Minnesota was the first state to have a charter school law and the first charter school in the United States, City Academy High School, opened in St. Paul, Minnesota in 1992. The prevalence of charter schools has increased with the support of the Obama Administration. Under the Administration, the Department of Education has provided funding incentives to states and school districts that increase the number of charter schools.