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Susan Notes:

Excellent study. I find it fascinating, however, that researchers never seem to look at the K12 Inc. curriculum as a possible source of their high dropout rate. See my study (conducted for NEPC when it was still Education Policy Research Unit (EPRU)> I think I'm still the only researcher in the country to have gone through K12 Inc. lessons one by one. And lived to tell about it.

Executive Summary

K12 Inc. enrolls more public school students than any other private education management organization in the U.S. Much has been written about K12 Inc. (referred to in this report simply as âK12â) by financial analysts and investigative journalists because it is a large, publicly traded company and is the dominant player in the operation and expansion of full-time virtual schools. This report provides a new perspective on the nationâs largest virtual school provider through a systematic review and analysis of student characteristics, school finance, and school performance of K12-operated schools. Using federal and state data, this report provides a description of the students served by K12 and the public revenues received and spent by the company at the school level. Further, the report presents evidence from a range of school performance measures and strives to understand and explain the overall weak performance of these virtual schools.

Students in K12 schools are more likely to be white and less likely to be Hispanic relative to comparison states. They are also less likely to be low-income and much less likely to be classified as English language learners. In recent years, K12 is increasingly serving more students with disabilities and students it classifies as at-risk, but it still spends relatively little for special education instruction and student support services. Students in schools operated by K12 Inc. and other virtual schools are also more prone to attrition.

K12âs full-time virtual schools receive less public revenue relative to the average for charter schools and district schools. At the same time, however, the company benefits from a number of cost advantages outlined in the report. Weak performance outcomes were found
http://nepc.colorado.edu/publication/understanding-improving-virtual iii of viii
across an array of school performance measures. Before promoting or even enabling the expansion of full-time virtual schools, more research is needed concerning two key issues: understanding why the performance of full-time virtual schools suffers, and how that performance can be improved. The report offers recommendations to policymakers to revise and strengthen accountability measures and finance mechanisms governing the operation of full-time virtual schools.

Key findings from the study are organized by section of the report and presented in bulleted form below.

Analysis of K12 Student Characteristics

  • K12 Inc. virtual schools enroll approximately the same percentages of black students but substantially more white students and fewer Hispanic students relative to public schools in the states in which the company operates. Because K12 schools generally enroll students without regard to school district boundaries, such same-state comparisons are the most useful.

  • On average, 39.9% of K12 students qualify for free or reduced-price lunch, compared with 47.2% for the same-state comparison group.

  • K12 virtual schools enroll a slightly smaller proportion of students with disabilities than schools in their states and in the nation as a whole (9.4% for K12 schools, 11.5% for same-state comparisons, and 13.1% in the nation).

  • Students classified as English language learners are significantly under-represented in K12 schools; on average the K12 schools enroll 0.3% ELL students compared with 13.8% in the same-state comparison group and 9.6% in the nation.

  • Most K12 schools serve students from grades Kindergarten to 12; however, K12âs enrollment is greatest in the middle school grades. Enrollment decreases sharply for the high school grades.

  • Analysis of K12 Revenues and Expenditures

    Detailed revenue and expenditure data were obtained from the federal dataset on school finance (2008-09). This dataset included information from seven K12 schools located in five states. Those seven schools enrolled 21,866 students in 2008-09, nearly 60% of all students enrolled in all K12-operated schools in that year, according to National Center for Education Statistics (NCES) data. We analyzed K12 revenues and patterns of expenditures and compared them with three groups: (1) brick-and-mortar charter schools in the five states, (2) all public schools in the five states, and (3) all public schools in the country.


  • During the 2008-09 school year, K12 schools reported receiving an average of $7,393 in public revenue per pupil, which is less than what charter schools ($9,258) or district schools ($11,708) received in the same states. The national average for public revenue per pupil for all public school districts in that same school year was $12,139.

  • Expenditures

  • K12 schools spend more on overall instructional costs than comparison schools, but noticeably less on teacher salaries and benefits. The data does not provide clear answers to explain this. We assume that this is explained by contracts back to the company for instruction-related costs.

  • K12 schools outspend comparison schools on administration but spend substantially less on administrator salaries and benefits. We believe the bulk of the additional spending on administration is accounted for in contracts to the company, although the variables in the federal finance data set do not clearly explain this discrepancy.

  • K12 spends little or nothing on such key items as facilities and maintenance, transportation, and food services.

  • K12 also spends relatively little for supplemental programs and an array of activities and services that fall under the category of Student Support Services.

  • Although K12 enrolls an increasing number of students with disabilities, it spends less than half as much per pupil as charter schools on special education instruction and a third of what districts spend on special education instruction.

  • Cost advantages and disadvantages

  • Full-time virtual schools inherently have a tremendous cost advantage when it comes to facilities, operations, transportation, and food services.

  • Based on K12âs spending patterns, its full-time virtual schools also benefit from cost advantages by having more students per teacher and by reducing overall spending on teacher salaries and benefits, particularly for special education instruction.

  • Full-time virtual schools have to spend more on computers and the development of online curriculum and the development of learning platforms. Also, it is assumed
    that these schools need to spend more on marketing and recruitment of students than brick-and-mortar schools, which often have students assigned to them. Beyond this, companies such as K12 spend resources to lobby and advocate for the expansion of online learning across the country, although such expenses are not clearly captured with the established categories and variables in the federal district finance dataset.

  • There is a need for more research on the actual costs of educating students in full-time virtual schools. Such research will require companies that operate these schools to be more transparent with their financial data than they have been heretofore.

  • Analysis of K12 School Performance

  • Only 27.7% of K12 schools reported meeting Adequate Yearly Progress (AYP) in 2010-11. This is nearly identical to the overall performance of all private Education Management Organizations that operate full-time virtual schools (27.4%). In the nation as a whole, an estimated 52% of public schools met AYP in 2010-11.

  • AYP is a relatively crude indicator of whether or not schools are meeting state standards. Nevertheless, extremely large differencesâ"such as the 25-percentage point difference between the proportion of virtual schools that meet AYP compared with the proportion of brick-and-mortar charter or district schools that do soâ"warrant further attention. The aforementioned difference in AYP attainment has been constant over the past two years.

  • The majority of the K12 schools did not meet AYP because one or more groups of students did not meet state targets on either math or reading assessments (or both). In some cases, K12 schools did not meet the participation target: the requirement that at least 95% of students in a given grade take the state assessments.

  • Thirty-six of the 48 full-time virtual schools operated by K12 were assigned school performance ratings by state education authorities in 2010-11, and just seven schools (19.4% of those rated) had ratings that indicated satisfactory progress status.
  • The mean performance on state math and reading assessments of K12-operated virtual schools consistently lags behind performance levels of the states from which the schools draw their students.

  • * Across grades 3-11, the K12 schoolsâ scores were between two and 11 percentage points below the state average in reading.

    *In math, K12 students score, on average, between 14 and 36 percentage points lower than students in their host states, with the gap increasing dramatically for students in higher grades.

  • The on-time graduation rate for the K12 schools is 49.1%, compared with a rate of 79.4% for the states in which K12 operates schools.

  • Many families appear to approach the virtual schools as a temporary service: Data in K12âs own school performance report indicate that 31% of parents intend to keep their students enrolled for a year or less and more than half intend to keep their students enrolled for two years or less. K12 also noted in this report that 23% of its current students were enrolled for less than a year and 67% had been enrolled for fewer than two years.

  • Discussion and Conclusion

    The final section of the report summarizes findings specific to the research questions and explores a number of possible explanations for the generally weak performance of K12. Here (unlike the rest of the report) we include a broader discussion of full-time virtual schools as compared with traditional district schools and brick-and-mortar charter schools. We also present and discuss policy recommendations, highlighting a list of key questions for future research.

    Possible explanations for poor performance of K12 schools

    There are a number of possible explanations for the relatively poor outcomes of K12 and of full-time virtual schools on common measures of school performance.

  • K12 maintains that commonly used school performance measures do not adequately apply to virtual schools, since they have high levels of student mobility. This argument has some merit and is comparable to similar obstacles faced by large urban districts. As applied to full-time virtual schools, this raises an important empirical research question: Are these schools simply enrolling students who would be mobile in any case, or are the schools contributing to or causing the mobility?

  • Another possible explanation for the weak performance is that there are insufficient funds allocated for these schools. Our analyses found that K12âs virtual schools receive less revenue on average than brick-and-mortar charter schools and district schools, although K12 schools (and other virtual schools) have a number of cost advantages that justify the differences in revenue. A more in-depth analysis of the true costs of educating students in full-time virtual schools is required to better understand whether insufficient revenue is indeed the cause of poor performance.

    It is relevant to note that K12 Inc. shares positive news with investors about the profitability of the company and announced in May 2012 that it seeks to âincrease profitability in fiscal year 2013â by implementing as much as $20 million in costs savings. K12 argues that these cuts can be made âwithout any adverse effects on student performance, employee retention, customer satisfaction, or our growth rate.â1 Such statements by K12 suggest that it believes that weaknesses in performance are not due to insufficient revenues or cannot be addressed with additional resources. An alternative explanation is that the company chooses not to address the weak performance of its schools to protect profits.

  • A third possible explanation for the weak performance concerns inadequate or misaligned curriculum. This hypothesis was not explored in this study.

  • A fourth possible explanation for the weak performance relates to inadequate or insufficient instruction. Based on our findings, K12 devotes considerably fewer resources to instructional salaries and benefits for employees. This reduced spending on salaries is linked to the fact that K12 has more than three times the number of students per teacher compared with overall public school student-teacher ratios. The higher student-teacher ratio and the reduced spending on teacher salaries, as well as on salaries for all other categories of staff typically found in schools, help explain the poor performance of K12âs schools. Also related to the issue of adequacy of instruction, we found that K12âs math scores, which are more dependent on instruction, were substantially lower than reading scores, which are more influenced by studentsâ home environment.

  • Finally, we note the issue of âfit.â Full-time virtual schools may have the potential to provide an effective learning environment for some students but not others. Learning styles and resources within a home will differ from student to student. That possibility is not explored in this study, but it presents an important empirical question for later research as well as an important policy question concerning, for instance, the types of advertising being used to recruit new enrollees into full-time virtual schools.

  • Recommendations for policymakers

    Based on the findings, the following policy recommendations are offered for states or other appropriate policymaking entities:

  • Slow or put a moratorium on the growth of full-time virtual schools. In the area of full-time virtual education, states should place their first priority on understanding why the performance of virtual schools suffers and how it can be improved before undertaking any measures or programs to expand this new model of schooling.

  • Revise performance accountability measures for virtual schools. Since some performance measures commonly used for public schools are inadequate or inappropriate for full-time virtual schools, more suitable measures should be devised, implemented and, over time, improved. Part of the solution may involve alternative or supplemental measures, including measures of market accountability.

  • Revise funding formula and financial oversight. Funding formulas for virtual schools should reflect the actual costs of educating students in those schools, rather than the typical costs for educating students in traditional public schools. Given the high mobility of students in K12âs virtual schools, the practice of allocating funding for students who enroll should shift to funding based on the number of students who satisfactorily complete courses. This model is already in practice at the Florida Virtual School. More transparency is needed to understand how full-time virtual schools spend public funds.

  • Future research and conclusion

    Our study has raised more questions than we initially sought to answer. A list of questions for future research is included in the final section of the report as well as in Appendix F.
    While we share the excitement of new technologies and the potential these have to improve communication, teacher effectiveness, and learning, we are convinced policymakers should move forward cautiously and only after piloting and thoroughly vetting new ideas. Although this report is modest in scope, we hope that its findings will help inform policymakers and motivate researchers to carefully study various aspects of full-time virtual schools. A better understanding of virtual schools can serve to improve this new model and help ensure that full-time virtual schools can better serve students and the public as a whole.

    — Gary Miron and Jessica L. Urschel
    National Education Policy Center


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