Education on the Cheap

Publicly funded online schools run by private companies have been controversial with teachers groups and some education advocates since they started to take off a few years ago. But the concept of educating kids by computer has a strong appeal—not just among lawmakers but also among portfolio managers and investors. The two biggest companies offering online education—K12, Inc. and Connections Academy—are both for-profit, and until recently K12 had been a stock-market favorite. But an article this week on Seeking Alpha, a major investment website, casts doubt on the long-term profitability of K12 in light of poor student results.

In the past few years, school districts and charter schools have increasingly subcontracted out certain operations to either Connections Academy or K12, Inc. In many states, lawmakers embraced the idea, which promised to bring private-sector efficiency to education. Online education also offered an idyllic image: Kids can take classes anywhere, at times that work for them. Students with special needs can have tailor-made classes.

But poor student performance has plagued these programs. The K12 virtual academies in several states show high "churn" rates—students enrolling and then leaving the schools. According to some reports, teachers sometimes teach up to 70 students, which delivers bigger profits but poor test scores. The increased scrutiny has left some lawmakers concerned about the policies around online education and less eager to expand existing programs. That's a big problem for companies that rely on public dollars for a big portion of their profits.

"The growth of the student bodies themselves are a clear testament to the popularity of the school choice and charter school movement, as well as K12’s comprehensive online marketing and enrollment advisory efforts," writes Roddy Boyd in the Seeking Alpha story. "Just as evident, however, is another reality: the fact that these cyber schools might as well have a turnstile as their logo for the volume of withdrawals they experience."

Boyd is hardly the first person to notice the disturbing "churn" rates at K12 schools. A New York Times story last year excoriated the effectiveness of K12 schools, noting particularly the retention problems. “The kids enroll. You get the money, the kids disappear,” said one professor in the story who had studied for-profit "education management organizations," the technical term for companies like K12. The Times story focused on the problems in Pennsylvania. Boyd further notes that the K12's virtual academies have the same problem across the country. K12-run Ohio Virtual Academy, for instance, has a churn rate of over 51 percent.

Connections and K12 put a lot of resources into public relations. K12, Inc. spends millions on lobbying efforts while Connections Education's Mickey Revenaugh, the executive vice president for sales and marketing, also serves as the private chair for the Education Task Force at the American Legislative Exchange Council. ALEC is the powerful, Koch-funded organization that helps connect conservative lawmakers and corporations, and has had a major role shaping policy, particularly at the state level.

What's heartening in this case is that it appears that K12's poor results may have investors taking note. Either the company will improve its program at their behest, or policymakers will start shutting the door on the company. Either way, these companies probably won't have much luck if they continue to offer shoddy educations while raking in profits.

It may be easy, then, to say use this as an example of free-market capitalism improving the education system. But you also have to wonder if the emphasis on turning a profit, rather than delivering an optimal education, wasn't the problem in the first place.

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