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Market for NCLB Tutoring Falls Short of Expectations

By Rhea R. Borja — December 19, 2006 7 min read
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Five years after the federal No Child Left Behind Act spawned a new tutoring market for students in low-performing schools, experts say some companies are struggling to keep afloat, and others have outright failed.

Private-sector providers received $400 million in federal money for what are called supplemental educational services in 2005-06, according to a new report on K-12 tutoring by Eduventures, a Boston-based market-research firm. But that’s far less than the potentially $2.5 billion earmarked by the U.S. Department of Education in Title I funding for the SES provision, which provides free academic help to students in schools that fail to make adequate yearly progress under the law for three consecutive years.

Get more information on “Educational Reinforcements: An Examination of Publicly Funded K-12 Tutoring” from Eduventures.

Though the number of approved SES providers—which include nonprofit groups and school districts as well as companies—almost doubled from 2002-03 to 2005-06, as many as half may not have viable businesses, say education market experts such as Tim Wiley, a senior analyst at Eduventures.

“Any belief that companies would be raking in money from tutoring contracts has long been dispelled,” he said last week.

Obstacles Mount

Much of the initial enthusiasm felt by SES providers—and by the venture-capital firms investing in them—evaporated after they encountered such obstacles as district reluctance to permit companies to provide tutoring on school grounds, lack of communication between districts and parents about the tutoring programs, and what the companies see as bureaucratic red tape, market experts say.

Companies have also been hurt by competition from nonprofit groups and districts, some of which provide tutoring themselves. Mr. Wiley estimated that districts provide roughly half to 60 percent of NCLB tutoring.

The percentage of eligible students participating in SES programs has also been lackluster. Although that number has grown steadily over the past four years, only 23 percent of eligible students, or 585,000 out of 2.5 million, took advantage of the free tutoring in 2005-06, according to an August report by the U.S. Government Accountability Office.

To drum up enrollment and raise awareness of NCLB tutoring, U.S. Secretary of Education Margaret Spellings and other federal officials have made the first few of a series of planned visits to 13 school districts nationwide over the next few months, and are holding roundtable discussions with state and district officials, SES providers, and parents on how to better collaborate to make tutoring accessible.

Another challenge that companies have encountered is the difficulty of scaling up their tutoring programs. Many expended a lot of money and time forging relationships district by district. And if students didn’t show up for tutoring, companies didn’t get paid. Many providers underestimated those and other challenges. Consequently, they stumbled.

Steven Pines, the executive director of the Washington-based Education Industry Association, said that many companies initially had a “simplistic expansion mind-set” about after-school tutoring. The EIA, a 500-member trade group of education companies, has convened a 28-member “working group” to help shape state legislation related to SES, and recommend policy improvements for the SES provision of the federal law, which is up for reauthorization next year.

An SES Sampling

The swiftly evolving market for academic tutoring under the federal No Child Left Behind Act contains a wide range of companies with diverse business models.

*Click image to see the full chart.

Click to enlarge

SOURCE: Eduventures

“Whatever assumptions companies had four years ago, … they’ve learned that it’s not a mere duplication of their consumer-based tutoring market,” Mr. Pines said.

The difficult and mercurial nature of the tutoring market should come as no surprise, given the similar challenges faced by such for-profit education management companies as Edison Schools Inc., said Marc Dean Millot, the editor of School Improvement Industry Week, a podcast on the K-12 market. (“Analysts Debate Long-Term Viability of EMO Model,” Aug. 9, 2006.)

In fact, he said, the overall K-12 market is harder than others to navigate, in part because of its dependence on federal and state legislation, the difficulty of scaling up in a decentralized environment, and the views among some groups that for-profit companies have no place in public education.

“It was a predictable disappointment,” Mr. Millot said. “Although [Congress] created laws that give the private sector the right to operate in the system, they’ve done nothing else to prepare the regulatory and administrative environments for those entrepreneurs to thrive.

“So you can be the greatest tutoring company, but still fall flat on your face.”

‘Too Big, Too Fast’

No data seem to exist on how many tutoring providers have left the SES market. But anecdotally, some analysts say, many companies have had a rough time, and some have been sold or acquired.

In September, for example, Baltimore-based Educate Inc. sold its SES subsidiary, Education Station, to Knowledge Learning Corp. for $18 million. KLC is one of some 50 education and training companies owned in full or in part by Knowledge Universe Inc., a Santa Monica, Calif.-based company co-founded by the financier Michael R. Milken.

Jeffrey H. Cohen, then the president of Catapult Learning, the Educate division that oversaw Education Station, said the business was labor- and cost-intensive, and that Education Station did not fit with Catapult’s focus on the consumer market. (“Tutoring Giant Regroups as Stock Price Sags,” March 1, 2006.)

Then there’s Platform Learning. The New York City-based company was launched in 2003 specifically to provide NCLB tutoring. Venture-capital firms such as Quad Partners and AlpInvest Partners Inc., both based in New York City, pumped money into the company, which grew so fast that it rolled out its services to at least 40,000 eligible students nationwide within two years.

But enrollment in Platform Learning’s programs fell short of projections. Revenue plummeted from $58 million in fiscal 2004-05 to $30 million in 2005-06.

The company received a black eye in March, when an 18-month probe by investigators in the 1.1 million-student New York City school system concluded that company employees had offered cash and televisions to principals and gifts to students to boost enrollment. Platform Learning attributed some of the problems to early confusion about the rules governing the tutoring program. (“Tutoring Firms, N.Y.C. School Employees Faulted in Probe,” March 15, 2006.)

“Platform got too big, too fast,” said analyst Trace Urdan, a managing director with Signal Hill Investment Bank in San Francisco.

Platform Learning filed for Chapter 11 bankruptcy protection on June 21 in federal court in New York, listing $21 million in assets, and almost $37 million in debt, according to court documents.

Among its creditors are the Boston investment firm Capital Resource Partners, which it owes $9.5 million, and the education publisher Scholastic Inc., which Platform has failed to pay almost $2.9 million. Eight lawsuits against the company by other creditors have been filed in various courts in Florida, New Jersey, New York, and Pennsylvania.

Platform Learning may prove resilient, however. The company is still providing NCLB tutoring in several districts, including New York City.

On Nov. 27, U.S. Bankruptcy Judge Robert D. Drain approved the first step of a restructuring plan: The New York-based private equity firms Ascend Ventures LP and Blue Wolf Capital Management LLC are to invest more than $6.5 million to help the company reorganize.

“This investment is sufficient to support Platform Learning’s current operations and future expansion plans,” said Eugene V. Wade Jr., the company’s chief executive officer.

What’s Next?

The SES market will likely stay fragmented in the coming years, some observers say, though they have different ideas on what types of providers will succeed.

Some midsize companies will stay in the game, predicts Mr. Urdan of Signal Hill. In addition, he and others say, if the No Child Left Behind reauthorization results in a fine-tuning of the SES provision to make the tutoring market friendlier and more quality-driven to parents and providers, student-participation rates should improve.

“Only now is the government stepping in and regulating quality of instruction,” Mr. Urdan said. “For a quality provider, that’s not a bad thing. It will root out some of the marginal players, but will impose additional costs in serving the market.”

Mr. Millot of School Improvement Weekly, for his part, sees two types of companies as likely to succeed: very small, mom-and-pop companies, with typically low overhead and overall costs, and very big companies, which have lots of personnel and deep pockets.

“This is a highly fragmented industry,” he said. “No firm will have 10 percent of the market.”

A version of this article appeared in the December 20, 2006 edition of Education Week as Market for NCLB Tutoring Falls Short of Expectations

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