Early childhood education is complicated, from program budgets to risky reimbursement rates and licensing regulations. Here’s an explainer detailing why the field struggles to survive.
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At the rates most early care and education providers charge, it’s no wonder so many families are under the impression their kids’ programs are raking in hefty profits.
Yet the reality is quite the opposite.
Even as families are charged astronomical prices — an average of nearly $11,600 per year nationally, but easily twice that in some parts of the country, such as large cities — many programs are barely breaking even each month. As a result, the staff who work in early care and education programs are among the lowest-paid professionals in the United States, with an average wage of about $13 an hour — more in line with fast food workers than K-12 teachers.
Therein lies one of the fundamental barriers to opening, operating and sustaining an early childhood program in the United States.
“The core challenge … is the math does not work,” said Lauren Hogan, strategic adviser at the National Association for the Education of Young Children (NAEYC), a nonprofit that advocates for high-quality early learning through policy and research. “You cannot charge families enough to cover the true cost of care. There is a gap.”
For reporters covering early care and education, this dynamic is essential to know and understand. But there are other realities, too, that help to explain why the field has historically struggled — and continues to struggle — to remain viable. These are covered below.
Unlike K-12 education, early care and education is neither treated nor funded like a public good, despite the many benefits it offers to society. Early care and education is a critical workforce support — its existence allows parents (especially mothers) to go to work — and what happens in the early years is foundational for brain development.
Instead of a model in which services are guaranteed through public funding, many programs rely on private pay from families for the bulk of their revenue, alongside a “blending and braiding” together of other funding streams, Hogan said.
These sources can include child care subsidies from the state — authorized through the federal Child Care and Development Block Grant (CCDBG) and funded through the Child Care and Development Fund (CCDF) — public pre-K dollars (which are only available in certain cities and states), philanthropic grants, corporate dollars, small business grants and loans, and a handful of other one-time and recurring revenue streams.
Programs that rely more heavily on private tuition payments from families, rather than public funding sources, tend to be especially prone to the volatility of the field and, ultimately, more susceptible to closure.
Perhaps the most ubiquitous source of funding for programs, apart from parent payments, is child care subsidies.
Every state receives federal CCDF funding to help offset costs for working parents who wouldn’t otherwise be able to pay for child care. States then set the rules and guidelines for distributing those funds to low-income families.
Families who qualify – by falling below a certain income threshold – are able to shop around for an early care and education provider who fits their needs. Not every provider participates in their state’s subsidy program, though. While many want to open up slots to low-income families with subsidies, there are a number of significant drawbacks and risks to participating.
First is that subsidy reimbursement rates – the amount the government pays a provider for each enrolled child who uses subsidies – does not reflect the true cost of care.
Rhian Evans Allvin is CEO of Brynmor Early Education and Preschool, a center-based program in Lorton, Virginia, that serves 152 children from birth to age 5. Though Virginia has improved its subsidy reimbursement rates in recent years, Allvin said, it still only reimburses for 75% of the cost of quality — a common target for states.
That inevitably puts providers in a precarious financial position, she added.
“Where do you make up the 25%? What part of quality do you not spend on? Do you not have certain materials? Do you pay your educators 25% less?” she asked. “I understand why they had to make decisions like that, to serve as many children as possible. But it doesn’t change the fact that 100% of the cost of quality is what it takes to deliver on 100% of quality.”
Allvin used toddlers enrolled at Brynmor to illustrate how that cost discrepancy can add up.
For a toddler spot in the program, Allvin charges $103 a day to full-fee-paying families. However, for that same spot — for a child between 16 and 24 months old — the state would reimburse Allvin $81 a day. That’s a $22 per day difference, or about $5,400 per year per child on subsidies.
Brynmor enrolls 42 toddlers in that age band. If all of them were eligible for subsidies, Allvin would be reimbursed about $227,000 less over the course of a year than it actually costs to provide them with high-quality care and education. “It adds up,” she noted.
Shay Jackson, the former owner of Modern Early Learning Academy, a licensed home-based program in Winston-Salem, North Carolina, also participated in her state’s subsidy program. She found that her payments would often be delayed, arriving days later in the month than expected.
For some providers, delays and disruptions in service can be disastrous, according to Natalie Renew, executive director of Home Grown, a national collaborative of funders committed to improving the quality of and access to home-based child care. So much so that many providers opt not to participate in the program at all.
“It’s not just a pain,” Renew said. “It’s a risk to providers. There aren’t consistent safeguards. … It’s risky, and providers have been burned. It’s not that they don’t want to serve these families. It’s that they have good reasons not to.”
Another challenge is that many states still reimburse providers based on children’s attendance, rather than enrollment. If a child is enrolled in full-time care but misses two weeks due to the flu or a family trip, a provider in a state that reimburses based on attendance would miss out on pay for that child for two weeks. (For reporters living in or covering states that are not in compliance with enrollment-based payments, consider inquiring about the status of that state’s temporary waiver and/or understanding the implications that an attendance-based reimbursement approach has on providers, families and children who participate in the subsidy program.)
“These practices are not just undermining the economic well-being of providers,” Renew said, “but they’re really discouraging best practices in terms of inclusion and creating incentives and appropriate supports for providers to support our hardest-to-reach and our hardest-to-serve families.”
Providers paid based on attendance will give priority to families who seem most likely to show up, she added.
“You are not going to enroll the family where mom has depression and sleeps in late and shows up three out of five days a week,” Renew pointed out. “You’re not going to enroll the family whose parents work in the fields and have difficulty getting back and forth. You’re not going to enroll the family with a child with a disability that has a hard time getting in the door every morning.” The majority of programs can deny enrollment for these reasons while Head Start and some public pre-K programs must follow rules related to enrollment and expulsion, Renew explained.
For these reasons and more, many providers deduce that, when it comes to their state’s subsidy program, the juice is simply not worth the squeeze.
During the COVID-19 pandemic, which decimated thousands of early care and education programs, federal funding helped to sustain and revive providers who might otherwise have shuttered.
The American Rescue Plan Act (ARPA), in particular, proved transformative. Of the $1.9 trillion package, $15 billion went to CCDBG, and another $24 billion to child care stabilization grants paid directly to providers every month through September 2023.
The stabilization grants helped Jackson, the North Carolina provider, open her program and get it off the ground quickly.
“I really don’t see how other people open up, honestly,” she said, noting that she ended up using the approximately $20,000 she received in stabilization grants to purchase everything, from fire extinguishers to cleaning products to curriculum materials to food.
Ultimately, though, those relief dollars dried up, and many providers have been left in a similar or worse spot than they were in before.
“Providers will talk about what they were able to do with those dollars,” Hogan of NAEYC said, “which means the loss of those dollars is even more devastating — because you could see how some of this could work [under a different system]. It feels even harder for some programs. To come so close and see it slip away is really difficult for them.”
Staffing is almost always the biggest cost for an early care and education program. That’s because, when they are very young, children are highly dependent on other adults, and states set limits on how many children one adult can safely have in their care.
For example, a state might limit one teacher to four infants, six toddlers or 12 preschoolers at a time.
Though it makes for staff-heavy programs, due to the razor-thin profit margins that many providers have, teachers are typically earning very little. An estimated 43% of early childhood educators are on some form of public assistance, such as Medicaid or food stamps. The low pay, lack of benefits and stressors of the job lead to high turnover and inconsistent care. It’s not uncommon, in the post-pandemic era, for programs to enroll children below their licensed capacity or close entire classrooms due to insufficient staffing.
It’s essential for reporters to understand this isn’t a problem in isolation. Staffing challenges in the field have ripple effects for children and families who wind up with less access, worse affordability and lower quality.
“Quality really is driven by the people, by the early childhood educators,” Hogan said. “Because we have these really core staffing challenges, we have overall challenges in getting to the kind of quality care that really benefits kids, families and communities, [especially] when we have educators who are themselves having trouble making ends meet, who are themselves underpaid, who are themselves stressed, and their well-being isn’t where it needs to be.”
For Jackson, the North Carolina provider, hiring even one staff member would’ve allowed her program to grow. She put out feelers and interviewed a handful of prospective teachers to come work alongside her. But they were all asking for about $20 an hour, she recalled. Jackson, the owner and sole employee of the program, was only paying herself about $14 an hour.
“I couldn’t pay them what they were asking,” she acknowledged. “It was impossible. So that [idea] was short-lived.”
Shortly after Jackson became pregnant with her second child last year, she learned it was a high-risk pregnancy that required frequent doctor appointments. Without an employee or even a substitute teacher available to fill in for her, she felt like it would be a disservice to her families to provide such sporadic care. And when she thought ahead to giving birth and wanting to take some time away to heal and bond with her baby, she couldn’t see a path forward.
Ultimately, the staffing challenges in the field — and the unique position home-based providers are in — led her to close her program in 2024.
Another challenge providers face is navigating a complex web of licensing regulations.
Home-based providers like Jackson may be required to add safety features to their homes, such as fire sprinkler systems, multiple exits on each floor and specific fencing.
These additions can become very costly. When Jackson realized she needed to comply with the state, county and city regulations — all of which were slightly different — she learned she’d need to add, among other things, a new fence in her yard. That cost her at least $5,000, she said, and forced her to dip into her savings.
“I think the biggest cost associated with licensing is the time and complexity of navigating systems,” Renew of Home Grown said. “If you’re a provider caring for kids 55 hours a week, that’s a lot.”
Add an unclear and constantly changing information landscape with no support, and it’s downright prohibitive to some, she added.
It requires a level of business acumen that many providers don’t have and can’t easily acquire, in Jackson’s experience. She wanted to run a program with children and was instead facing myriad zoning requirements and questioning whether to become an LLC or sole proprietorship.
“I thought it would be, ‘Oh, I’m working with children; I have a passion. This should be easy,’” Jackson conceded. “I quickly realized it was not that easy at all.”
Allvin, the CEO of Brynmor in Virginia, described the paperwork responsibility of licensing as “startling” and “onerous.”
Despite the price tag on children’s tuition, early care and education is undoubtedly a difficult field to operate in.
However, in recent years, some cities and states have made major headway in how they design, implement and fund their early care and education systems. These approaches can offer a path forward for others.
Vermont’s Act 76, passed in 2023, is one model held in high regard. It leverages a payroll tax to create long-term, sustainable investment — approximately $125 million a year — in child care, providing financial assistance to thousands of families across the state, improving the licensed capacity of child care slots in programs through increased state funding, and elevating the early childhood workforce with better compensation, benefits and professional development.
New Mexico residents, in 2022, voted to enshrine a right to education for children from birth to age 5 into its constitution — the first state to do so. The state is expected to collect $150 million a year to fund this new right by redirecting fees from the oil and gas developments it allows on public lands.
On a local scale, Multnomah County, Oregon, which includes the city of Portland, passed a universal free preschool initiative, Preschool for All, in 2020 and has been rolling it out over the last few years. The goal is to reach universality for all 3- and 4-year-olds by 2030. This pre-K initiative has been lauded for its commitment to protecting infant and toddler slots in the community, establishing new and expanding existing preschool programs to keep up with supply demands, and improving the compensation of the early childhood workforce so that it aligns with that of K-12 teachers in the area.
Additionally, Washington, D.C., has been a leader on multiple fronts. It has set a high bar for its early childhood workforce, requiring that center directors have bachelor’s degrees and lead teachers have at least an associate degree. It has increased the reimbursement rates paid to providers who accept child care subsidies. And its widely celebrated Pay Equity Fund has boosted the supply of early care and education in the District by supporting and stabilizing the early childhood workforce, through higher wages that align with public elementary school teachers in the area and a health insurance program.
Renew said she knows of early childhood providers in D.C. who are earning six figures thanks to a fair subsidy reimbursement rate and the Pay Equity Fund — a rare case in which providers are not just surviving, but thriving.
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