Special Report
Classroom Technology

E-Learning Funding Models Analyzed

By Katie Ash — August 27, 2012 7 min read

Just as the size, scope, and type of virtual school options available vary widely from state to state, so too do the methods of paying for them. For instance, the costs associated with operating a full-time virtual school are much different from the costs of providing supplemental online courses, which consequently need a much different funding formula.

While similarities in finance mechanisms exist between states, many choose to use a combination of those methods or create tailored policies that address specific state environments. But while the methods vary, advocates for online education agree that some models best support the growth and financial stability of virtual schools.

To begin with, the money should follow the student, advocates say. That method is the only way to make sure virtual schools are not limited in the number of students that can enroll.

In addition, proponents say, since virtual schools often provide more flexibility—allowing students to work at their own pace, often outside of regular school hours—the funding approach should also reflect such flexibility. Funding based on such traditional methods as seat-time or average daily attendance can be a problem, they say.

A few states, such as Florida and Utah, have begun tying funding for virtual schools to student outcomes instead of seat-time to better fit the structure of online education.

While it is hard to categorize how virtual schools are financed because of the myriad factors that go into such formulas, the following is a breakdown of the more common methods of funding, according to the Vienna, Va.-based International Association for K-12 Online Learning and the Durango, Colo.-based Evergreen Education Group, which were the primary sources for this analysis. Keep in mind that many states use a combination of methods.

State Appropriation

Many state virtual schools are funded by a fixed state appropriation or a line item in the budget, which is set by the legislature. When such schools are first launched, the appropriation typically works well because most of the startup costs go toward infrastructure, course curricula, and professional development. And if the virtual school has strong political support, the appropriation can be relatively large.

But as a state virtual school gets up and running, the appropriation method may begin to stifle the school’s growth, say advocates, by limiting the number of students it can afford to take since funding is set at a fixed amount. Some state virtual schools see exponential growth each year—something a fixed appropriation doesn’t take into consideration.

At the same time, funding through appropriation is hard for school officials to predict because it is subject to economic realities and changes in the political climate.


  • Virginia
    The state’s school, Virtual Virginia, is funded largely on state appropriations, along with a small amount of income from out-of-state residents who take its courses. The appropriation dropped by a third, from about $3 million in 2009-10 to about $2 million in 2010-11 and 2011-12.
  • Kentucky
    The Kentucky Virtual Schools program is mostly paid for through an annual state appropriation, which dropped from $800,000 to $753,000 in 2011-12. The school also receives some money through course fees paid by districts in the state.

Average Daily Membership (ADM) or Average Daily Attendance (ADA) for District Programs

Like many brick-and-mortar schools, some online schools, especially at the district or school level, are financed by the school’s ADM or ADA. That means the school gets funding for the average number of its students over a given time.

The benefit of this method for online schools is that, unlike some other methods, it ensures that online schools are receiving an amount of funding per student equal to that of their brick-and-mortar counterparts.

However, this method ties aid to a time-based schedule, which is not necessarily in line with the structure of most virtual schools, because of the greater flexibility they allow in student schedules. Methods of calculating ADM or ADA are typically designed for brick-and-mortar schools and may not be able to consider that virtual school students could be learning on weekends or evenings.


  • Idaho
    Charter school funding is based on ADA. Districts offering online or blended course offerings may count students in those courses as part of their average daily attendance, but they are not allowed to claim more than one full-time equivalent, or FTE, for each student.

Standard Charter School Funding

Some states with virtual charter schools pay such schools at the same rate as other charter schools. This approach provides virtual charter schools with equal funding compared with brick-and-mortar charter schools. But the method may not work well for a virtual charter school that draws students from multiple districts, as the charter funding formula can change from district to district.


  • Michigan
    Two virtual charter schools in there were recently authorized. They will receive the same rate of funding as other charter schools.

Charter School Funding With a Separate Rate for Online Schools

Other states devise a special charter school funding formula for virtual schools. That ensures that the school will receive the same amount of money for each student no matter which district he or she comes from. But such formulas tend to provide less money for virtual students than for students in regular schools, dropping below what some educators feel is adequate, said John Watson, the founder of the Evergreen Education Group. The Durango, Colo.-based consulting firm publishes the annual “Keeping Pace With K-12 Online Learning” report about the state of online education in the United States.


  • Wisconsin
    The state education department sets a flat rate for students who enroll in virtual charter schools through open enrollment.
  • Pennsylvania
    Virtual charter schools receive aid based on the funding level of the student’s resident district. Virtual charters bill districts directly and receive about 72 percent of the average funding for a student in a regular school.

Funding Follows the Student

In some states, the funding is tied to the student and will follow him or her to whichever school the student attends, whether brick-and-mortar or virtual. Advocates for virtual schools believe that this funding mechanism is the most effective for giving online schools the money they need to expand. The method ensures that virtual schools are receiving the same amount of aid as brick-and-mortar schools, and does not arbitrarily cap the number of students who can attend the virtual school because of funding constraints.

But this method can create tension between virtual schools and regular school districts, which often see virtual schools as siphoning funding from traditional districts.


  • Maine
    It recently passed a law that requires at least 99 percent of funding to follow the student to whichever school he or she is attending.
  • Utah
    The funding follows the student down to the course level. So, for a student taking one virtual course and five in-person classes, the money would be split so the virtual school would receive funds for educating the student in one course, while the brick-and-mortar school would receive money for educating the student in five courses.

Competency-Based Funding

A handful of states have adopted policies that allow virtual schools to be financed not on such time-based principles as seat-time or ADM and ADA, but rather on the basis of student outcomes. Virtual school backers believe this method gives online schools more flexibility in letting students progress at their own pace, since they are not required to be in courses for a certain amount of hours.

A downside, though, is that this method may require a cumbersome amount of tracking and paperwork to ensure students are meeting proficiency standards. It also can be tricky to mesh this system with a time-based system if a student happens to transfer from one school to another. Lastly, critics of this funding mechanism warn that tying student performance to funding could give teachers an incentive to pass students who may not have actually learned the curricula.


  • Florida
    The Florida Virtual School, the longest-running and largest state-sponsored virtual school in the country, receives funding for each student only if that student successfully completes the course.
  • Utah
    Funding for students is based in part on successful completion of the course. Schools receive half the funding for students at the beginning of the course and the other half after the credit has been earned by the student.

A version of this article appeared in the August 29, 2012 edition of Education Week as Benefits, Drawbacks Outlined for E-Learning Funding Models


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