Special Report

Virtual Education Companies Face Increasing Scrutiny

By Ian Quillen — March 12, 2012 9 min read
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As researchers, politicians, and the general public have begun to question the results of fully online virtual schooling, private providers—particularly for-profit companies—that supply curriculum, content, and sometimes instruction and school management for online education are facing the most scrutiny.

Recent studies suggesting declining achievement among full-time public virtual school students don’t always distinguish between publicly and privately run schools. Still, the private sector and its two biggest for-profit providers—K12 Inc. and Connections Education—appear to be taking most of the heat.

Some have begun to ask whether those companies have exaggerated student achievement to drive investment. One stockholder even filed a lawsuit in late January against Herndon, Va.-based K12 alleging that the company violated securities law with statements it made about its students’ performance on standardized tests.

Researchers, meanwhile, have warned that virtual public schools run by independent for-profit and nonprofit organizations are growing faster than states can hope to regulate them. They also say that, while virtual schools’ struggles to meet some performance measures may stem from the enrollment of many students who have problems in brick-and-mortar schools and take the virtual alternative as a last resort, those students failing to complete their studies is equally troubling under funding models in which money follows a one-time count of student enrollment from early in the academic year.

And there are even hints that virtual education leaders from public and nonprofit-managed virtual schools are growing wary of the motivations of their for-profit counterparts and their endeavors with full-time virtual students.

“We do not have a Consumer Reports, we do not have an Underwriters’ Lab, and to say that we can accept this in good faith is to be naive about education,” says Liz Pape, the president and chief executive officer of the nonprofit Virtual High School Global Consortium, or VHSGC, which is based in Maynard, Mass., and serves 15,000 students. While the VHSGC is an independent nonprofit, it is similar to most state virtual schools in that its courses serve primarily as supplements for students whose main course of study is in a regular school. Pape has been admitted to the State Virtual School Leaders Association.

“But on top of measures of quality and accountability, what are [for-profit providers] putting out there in terms of our goals around a continuous improvement process?” Pape continues. “How important is it to improve performance versus how important is it to improve stockholder returns?”

Research from the National Education Policy Center, or NEPC, at the University of Colorado at Boulder suggests that student achievement in virtual charter schools run by for-profit companies is lagging while the enrollment count—and funding dollars—directed to such schools are ballooning.

The study, released in late January, found that only 27.4 percent of full-time virtual charter schools run by for-profit companies achieved adequate yearly progress, or AYP, under the federal No Child Left Behind Act in the 2010-11 school year, compared with 51.4 percent of brick-and-mortar charter schools managed by private for-profit or nonprofit organizations. In the same year, enrollment in virtual charters run by either for-profit or nonprofit organizations rose from just over 80,000 to nearly 120,000 students nationwide, it found.

But it did not say whether the poor AYP showing was related to a rise in enrollment, nor did it account for schools that use a hybrid model that combines online and face-to-face instruction. It classified such schools as brick-and-mortar schools.

Gary Miron, the lead author of the study and a professor of evaluation, measurement, and research at Western Michigan University’s College of Education and Human Development, in Kalamazoo, concedes that AYP is a crude measure of academic success, and says it’s possible that the reason many virtual schools aren’t making AYP is because of a higher rate of student turnover in virtual schools, rather than the performance of students who stay enrolled. But even so, low AYP marks indicate a structural problem, he says.

“We don’t have the right financial mechanisms and the accountability mechanisms in place,” Miron says of the AYP disparity. “It’s interpretable. Something is going wrong here. It could be for other things, because they’re getting paid for kids they are not serving.”

Ronald J. Packard, the founder and chief executive officer of K12 Inc., says that other measures of for-profit virtual schools as a whole, and K12-run schools in particular, show a more favorable picture, and that the increase in enrollment at virtual schools has been driven by school systems or individual parents that have experienced benefits of virtual learning.

The company is now involved in efforts to use independent research to demonstrate the effectiveness of its programs. That research, Packard says, has been expedited in part to counter a December 2011 New York Times article that profiled the K12-run Agora Cyber Charter School, based in Wayne, Pa., as a school simultaneously generating rising profits and posting subpar student achievement.

In a lengthy statement in response to the story, K12 argued that the Times story selectively incorporated some facts about achievement at the companies’ virtual schools while omitting others, relied too heavily on unnamed sources as vehicles of criticism, and purposefully advanced “an anti-parent choice policy agenda.”

Further, Packard says, while full-time virtual schooling is not a desirable option for every student, the growth in the number of students at K12-managed institutions, as well as at other virtual schools, is essential for an increase in quality of virtual offerings.

“The more you have, the more you can continue to invest in better and better results, content, and systems,” Packard says, pointing to a flurry of consolidations among companies in the virtual education marketplace, including K12’s purchase of Kaplan Inc.'s virtual education division in May 2011.

Packard adds that his company has been able to invest roughly $30 million in development of a new adaptive math curriculum for grades K-5 because of revenue generated from increasing enrollment.

“It’s very hard to do what we do. Both Kaplan and Insight Schools [another private virtual school provider] had lost a significant amount of money doing this,” Packard says. “It takes an enormous amount of efficiency to deliver education.”

Barbara Dreyer, the president and CEO of Baltimore-based Connections Academy—the nation’s second-largest for-profit online learning provider, after K12—also says that while the expansion of virtual providers’ scale can help drive product development, it can also hurt early measures of effectiveness.

“A unique factor affecting the performance of Connections Academy schools, and most other full-time virtual programs over the last few years, has been the high number of new students being tested, which last year often ranged between 40 percent to 60 percent,” Dreyer wrote in a February email. “It is not realistic to move scores in a very short period of time, particularly for those students who have been in some [other] form of schooling for a long period of time.”

Research and Regulation

Another NEPC study, released last October, suggests that for-profit-managed public virtual education has grown most quickly where it is least regulated, and that demand by districts or students for virtual education doesn’t necessarily mean it has been proven effective. The study also implies that previous research on blended learning—in which elements of online and face-to-face instruction are combined—has been applied to arguments by companies to state and district education agencies to sell the merits of fully online learning for some students.

Luis Huerta, an associate professor of education and public policy at Teachers College, Columbia University, says that K12 Inc. and others have also pointed to a meta-analysis of several hundred studies on virtual education to underline the potential to deliver high-quality instruction virtually. They do so, he says, despite the fact that the analysis, from the National Center for Education Statistics, an arm of the U.S. Department of Education, found that all but a handful of those studies pertained to postsecondary education, not the precollegiate system.

“That in itself is very disingenuous,” Huerta says. “Many would argue that most innovations come from the private sector—that the private sector is most equipped. But in this context, there is no evidence that what they are engaged in is really innovative.”

Though many researchers question why it appears students at public virtual schools run by for-profit private providers are lagging behind their brick-and-mortar peers on measures of achievement, they generally argue for more research on, and regulation of, the field, rather than its abolition.

Miron of Western Michigan University, for example, says he is planning future research that he hopes will explain the causes of the persistent gap in AYP scores between for-profit virtual schools and their brick-and-mortar counterparts.

He also wants policymakers across states to make amendments to how virtual schools receive state funding. Such changes could include a smaller allocation per student for what is perceived to be a cheaper method of education, or paying privately run virtual schools for student course completions rather than course enrollments. The course-completion method of funding is used by the publicly run Florida Virtual School. (“Florida Virtual Update,” this report.)

Either measure would help constrict profit margins for private virtual schools, Miron says, and curb what he considers out-of-control growth.

Meanwhile, Jo Vos, a project manager with Minnesota’s office of the state legislature, says the state government sees online learning—full- and part-time—as an important part of the future, despite a recent report showing completion rates for the state’s full-time virtual students to be decreasing over time.

Although the report found that 25 percent of Minnesota high school seniors enrolled in a virtual school dropped out—compared with just 4 percent of seniors at brick-and-mortar schools in the state—Vos says there is an understanding that one contributing factor to the discrepancy is that many students turn to virtual schools as a last resort.

She also stressed that it was unclear in the report from the Minnesota Office of the Legislative Officer whether virtual schools managed by private-sector companies performed any better or worse than those managed by district personnel.

“In terms of accountability, it is the school district or group that is establishing the online school in the first place that has to ask the hard questions, even when you’re using a private provider to do everything,” Vos says. “There has to be accountability there.”


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