Transforming Financing in Early Care and Education

A Look at Conclusions and Recommendations from the Latest National Academies Report

Ask any new parent about the costs of early care and education, and you’ll hear a single resounding theme: it’s expensive. At the same time, compensation for childcare workers averaged just $21,000 last year - far lower than many would think is appropriate for someone tasked with such an important and difficult responsibility. But while the financial struggles on both sides are palpable, even these numbers vastly understate the issue due to the fact that the quality of the education and care many children receive–and that many families struggle to afford–remains out of line with what we know about what young children need to develop and grow.

In 2015, the Institute of Medicine (IOM) and the National Research Council (NRC) of the National Academies published a groundbreaking report that sought to address these issues. Firmly grounded in the science of how young children learn and develop, Transforming the Workforce for Children from Birth Through Age 8: A Unifying Foundation, promoted a wholesale rethinking of how we approach working with young children, including ensuring professionals who work with young children are supported in building the competencies necessary to do their jobs well. Just last week, the National Academies of Sciences, Engineering, and Medicine published a follow-up study, Transforming the Financing of Early Care and Education, a consensus study specifically focused on how to fund early care and education for children from birth to kindergarten entry that is consistent with the vision outlined in Transforming the Workforce.[1]

The report makes the case that funding for early care and education is both inadequate and ineffective. For one thing, families struggle to pay for care, often opting out of care altogether or seeking lower-quality options than what would be most beneficial for their child’s development. At the same time caregivers struggle to make ends meet on the low salaries their jobs provide, much less pursue the higher education opportunities many experts say would make them better at their jobs (including the Transforming the Workforce authors).

In addition to providing insufficient resources, our current financing system suffers from fragmentation across programs that serve different goals and distribute funding in different ways. The main financing programs include the direct provision of services through, for example, government contracts with providers (Early Head Start and Head Start and state-funded pre-K programs) and subsidies to families to assist with childcare costs (child care development block grants). Each of these offerings has different eligibility rules, quality standards, funding sources, and constituencies, indicating that funding for early education is not just inadequate and difficult to navigate for families, but also overly complex and burdensome to providers.

In improving this inadequate and ineffective system of financing, the committee envisions a transformed, effective financing structure that builds on several principles for high-quality early care and education. First, professionals play a critical role in caring for and providing support to children as they learn and grow, and any systems-level reform will require a diverse, competent, effective, well-compensated, and professionally supported workforce. Second, families should not be limited in their choices of providers by personal characteristics such as race or ethnicity, socioeconomic status, ability status, or geographic region. Third, financing must be adequate, equitable and sustainable, and provide incentives for quality, but must also be efficient and avoid placing unnecessary administrative barriers on providers or the families they serve. Fourth, families should have choices about whether to participate in formal childcare, and flexible options such as home-based care, part-time care, and care at off-peak hours are critical to maintaining access for all children. Fifth, appropriate facilities are key to children’s development and financing should not ignore facilities maintenance, improvement, and development. Finally, systems for ongoing accountability, transparency, and evaluation are key to understanding whether and to what degree progress is being made.

ece principles

In addressing these issues in accordance with the principles listed above, the committee came up with several recommendations, as well as a comprehensive cost estimate of providing access to high-quality and affordable ECE for families who chose to participate. The full recommendations are outlined below, but a few of the report’s main messages are worth highlighting here:

How much would it cost?

The committee created an illustrative cost estimate for establishing appropriate supports for early care and education professionals, affordable and equitable access to early education for families, and developing and maintaining adequate facilities and other systems-level costs. When fully implemented, such a system would cost an estimated $139.9 billion annually, reflecting both the costs of systems-level improvements and behavioral shifts among families to adjust their use of care once an array of high-quality options is made available. This figure would put the United States in line with other OECD countries in the percentage of GDP spent on childcare each year: $139.9 billion is 0.75% of U.S. GDP, compared with 0.8% of GDP on average for other OECD countries. In addition, $139.9 billion is less than one-quarter of current expenditures on K-12 education.

What share should families pay?

There are several approaches to determining a reasonable share of costs for families to pay. One approach is that public investments should cover the entire costs of ECE, much like our current K-12 system (and an approach that has been increasingly pursued among higher education practitioners). This approach is appealing in its simplicity and ability to ensure access for all children, but such an approach would substantially increase the public investment required to fully fund a high-quality ECE system, by eliminating a key source of revenue that currently goes toward providing care. In this light, some programs may continue to charge fees to families, while others (such as state-funded pre-K programs) might remain tuition-free. For providers that charge fees to families, the committee recommended establishing a funding structure that entirely eliminates payment for the lowest income families, and payments progressively increase with family income. This model would require less from low- and middle- income families and progressively more from higher-income families.

What about Higher Education costs?

Transforming the Workforce included bold recommendations with regard to the training and competencies that individuals who work with young children should receive. Given current compensation levels, the committee recommends that current ECE professionals should not be responsible for their tuition payments, either out of pocket or through the use of student loans. For new entrants to the ECE profession, it may become appropriate to ask individuals to contribute a reasonable percentage of their expected annual income post-graduation, either up front or through student loans. Many existing federal and state grants and scholarships could be leveraged to help cover higher education costs for ECE professionals, but the states have a responsibility to provide additional funding to close any remaining gaps. These recommendations apply to both traditional forms of higher education and alternative credentials and pathways, but all opportunities should include regular oversight and evaluation to ensure higher education opportunities provide the necessary competencies and curricula is aligned with the science of early learning.

In addition to covering tuition expenses for the current workforce, investments in faculty recruitment and development, curriculum development and alignment, and innovative approaches to better serve nontraditional students will be necessary for individuals currently working in ECE fields to succeed in higher education. The report discusses promising approaches but stops short of a specific recommendation. Instead, the committee recommends that state and federal funding be provided to higher education institutions with the explicit goal of developing appropriate opportunities for high-quality higher education that will ensure ECE professionals acquire the competencies and skills necessary to successfully promote healthy development and growth among the children they serve. Ongoing professional development opportunities are also included in the committee’s aggregate cost estimate, and all reforms should be implemented with attention to evidence and evaluation of what works in this area.

These recommendations scratch the surface of the full committee report - the complete recommendations from the report are listed below, and the full report can be found here.

Recommendation 1: Federal and state governments should establish consistent standards for high quality across all ECE programs. Receipt of funding should be linked to attaining and maintaining these quality standards. State and federal financing mechanisms should ensure that providers receive payments that are sufficient to cover the total cost of high-quality early care and education.

Recommendation 2: All children and families should have access to affordable, high-quality early care and education. ECE access should not be contingent on the characteristics of their parents, such as family income or work status.

  • ECE programs and financing mechanisms (with the exception of employer-based programs) should not set eligibility standards that require parental employment, job training, education, or other activities.
  • Federal and state governments should set uniform family payment standards that increase progressively across income groups and are applied if the ECE program requires a family contribution (payment).
  • The share of total ECE system costs that are not covered by family payments should be covered by a combination of institutional support to providers who meet quality standards and assistance directly to families that is based on uniform income eligibility standards.
Recommendation 3: In states that have demonstrated a readiness to implement a financing structure that advances principles for a high-quality ECE system and includes adequate funding, state governments or other state-level entities should act as coordinators for the various federal and state financing mechanism that support early care and education, with the exception of federal and state tax preference that flow directly to families.

Recommendation 4: To provide adequate, equitable, and sustainable funding for a unified high-quality system of early care and education for all children from birth to kindergarten entry, federal and state governments should increase funding levels and revise tax preferences to ensure adequate funding.

Recommendation 5: Family payments for families at the lowest income level should be reduced to zero, and if a family contribution is required by a program, that contribution, as a share of family income, should progressively increase as income rises.

Recommendation 6: A coalition of public and private funders, in coordination with other key stakeholders, should support the development and implementation of a first round of local-, state-, and national-level strategic business plans to guide transitions toward a reformed financing structure for high-quality early care and education.

Recommendation 7: Because compensation for the ECE workforce is not currently commensurate with desired qualifications, the ECE workforce should be provided with financial assistance to increase practitioners’ knowledge and competencies and to achieve required qualifications through higher-education programs, credentialing programs and other forms of professional learning. The incumbent ECE workforce should bear no cost for increasing practitioners’ knowledge base, competencies, and qualifications and the entering workforce should be assisted to limit costs to a reasonable proportion of postgraduate earnings, with a goal of maintaining and further promoting diversity in the pipeline of ECE professionals.

  • Existing grant-based resources should be leveraged, and states and localities, along with colleges and universities, should work together to provide additional resources and supports to the incumbent workforce, as practitioners further their qualifications as professionals in the ECE fields.
  • States and the federal government should provide financial and other appropriate supports to limit to a reasonable proportion of expected postgraduate earnings any tuition and fee expenses that are incurred by prospective ECE professionals and are not covered by existing financial aid programs.
Recommendation 8: States and the federal government should provide grants to institutions and systems of postsecondary education to develop faculty and ECE programs and to align ECE curricula with the science of child development and early learning and with principles of high-quality professional practice. Federal funding should be leveraged through grants that provide incentives to states, colleges and universities to ensure higher-education programs are of high quality and aligned with workforce needs, including evaluating and monitoring student outcomes, curricula, and processes.

Recommendation 9: The federal and state governments, as well as other funders, should provide sustained funding for research and evaluation on early childhood education, particularly during the transition period to ensure efforts to improve the ECE system are resulting in positive outcomes for children and in the recruitment and retention of a highly qualified workforce.

Recommendation 10: The federal government should align its data collection requirements across all federal ECE funding streams to collect comprehensive information about the entire ECE sector and sustain investments in regular, national, data collection efforts from state and nationally representative samples that track changes in the ECE landscape over time, to better understand the experiences of ECE programs, the ECE workforce, and the developmental outcomes of children who participate in ECE programs.

[1] (Disclosure: I served as a member of the consensus study on Financing ECE, but the views reflected here are my own unless otherwise noted).


Kim Dancy is a senior policy analyst with the Education Policy program at New America. She works with the higher education team, where she conducts original research and data analysis on higher education issues, including federal funding for education programs.