Education Savings Account (ESA) programs face a critical challenge: balancing rapid access to funds for families while maintaining proper oversight of public dollars. ESA Payments the Easy Way, a new white paper by Heidie Nesset, vice president of implementation, proposes an elegant solution by adapting proven systems from health savings accounts (HSAs) and flexible spending accounts (FSAs).
The Current Challenge
Many ESA programs rely on manual review processes that create delays for families and burden administrative staff. Yet the healthcare industry has already solved this problem through automated controls that enable instant purchases while preventing misuse.
A Proven Model for ESAs
The proposal for state ESA administrators leverages three key mechanisms from HSA/FSA programs, layered onto a trusted access card payment system:
- Merchant category code (MCC) whitelisting: Cards only work at pre-approved education-related businesses like schools, tutoring centers, and bookstores.
- 90% rule with annual attestation: Vendors whose inventory is at least 90% ESA-eligible can accept cards immediately after a simple yearly certification.
- Real-time authorization: Bank-grade fraud detection screens transactions instantly, while risk-based audits verify compliance with greater scrutiny if the need arises.
Benefits for ESA Administrators and Policymakers
The system ensures program integrity with multiple layers of protection:
- Cards only work at education-related merchants
- Cash withdrawals and gift cards are automatically blocked
- All refunds must be returned to the ESA card
- Retains risk-based auditing with swift clawback capabilities
Benefits for All Stakeholders
- Families: Instant access to approved purchases
- Providers: Faster payments and simple onboarding
- Administrators: Reduced manual review burden
- Taxpayers: Strong and lean automated oversight
Next Steps
States can begin implementing this system immediately, starting with a small pilot program. yes. every kid. foundation. offers implementation support while allowing agencies to maintain full control over their programs. For more on this idea, read the full ESA Payments the Easy Way policy brief below:
