K12, Inc Continues its Slide Down


Two days ago, we revealed multiple K12 school closures and a first ever union contract that we estimate will lead K12 to lose money in fiscal 2019 and beyond.

Yesterday, we learned of another school closing; we estimate this non-managed school will reduce revenue by another $7 Million and operating income $5 Million.

We were told the school was closing due to its inability to meet academic standards, marking yet another failed chapter in the virtual charter school story.

More Bad News For K12’s Fiscal 2019

On Monday, we released a report that disclosed five K12 (NYSE:LRN) schools that are closing or at risk of closing after this school year and a first ever union contract for the California Virtual Academies. We estimate that the lost revenue and increased expenses will cause pre-tax earnings to decline $20 Million and lead K12 to lose money in fiscal 2019 and beyond.

Yesterday, we were told of yet another school closing. A parent of the Texas Virtual Academy (TVA) 3-8 Campus told us that, according to a letter from the school, it will be closing after the school year due to an inability to meet academic standards.

We called K12, who partners with the school’s operator, and the enrollment specialist confirmed that the school is closing.

TVA, which is now known as Responsive Education Virtual Learning, is operated by ResponsiveEd but uses K12’s curriculum. We believe this makes TVA a non-managed K12 school, which earn lower revenue per student but have higher margins. In essence, K12 is just selling software.

According to the Texas Tribune, TVA’s 3-8 campus had 3,419 students enrolled for the 2016/2017 school year (the figure was also confirmed on the Texas Education Agency website). Assuming enrollment was flat in the 2017/2018 school year, and using fiscal 2017’s revenue per non-managed student of $2,262, the closure of TVA will reduce fiscal 2019 revenue by $7.7 Million.

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Online Schools 40% Cheaper to Run Than Public Schools


The Thomas B. Fordham Institute is a conservative think tank located in Ohio. It is a member of both the State Policy Network and the American Legislative Exchange Council (ALEC).  It’s mission includes advancing charter schools (it is “a model charter school authorizer”) and it operates from the assumption that public schools are failing:

… too many American children receive a mediocre or worse education because too many of our schools and school systems are complacent or dysfunctional.

It publishes research to support these positions. In a recent addition to its Creating Sound Policy for Digital Learning series, the Institute published The Costs of Online Learning:

We find that average overall per-pupil costs of both models [full and part time on-line schooling] are significantly lower than the $10,000 national average for traditional brick-and-mortar schools—and that virtual schools are cheaper on average than blended schools.

In fact, it found that online schools are 40% cheaper to run than traditional public schools.


The authors concluded:

The promise of online learning is twofold: Technology has the potential both to improve  student outcomes and to lower costs. Unfortunately, to date and at scale, technology has fulfilled neither of these promises in K-12 education.

Although it suggests online learning is sold as a way to save money, the funding of virtual and neighborhood pubic schools is in most cases is the same. The lower costs experienced by online companies represent their profit margins.

Read the whole study here.

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New report shows limited progress towards accountability, transparency for virtual schools

Online learning options have surged over recent years, with more than 500 full-time virtual schools and 140 blended schools enrolling more than 300,000 students combined across the nation, including Michigan, K-12 online learning is clearly picking up speed.

The report, Virtual Schools in the U.S. 2017, produced by the National Education Policy Center (NEPC) with funding from the Great Lakes Center for Education Research and Practice, examines virtual schools and blended schools, their impact on education and provides recommendations for policymakers.

The authors of the 2017 report found that limited progress has been made towards creating sound virtual education policies since the last inclusive report in 2015. They also found an alarming lack of trustworthy research to support virtual schools’ practices or to justify ongoing calls for continued expansion.

Authors of the report recommend that policymakers press for accountability, transparency and high standards to accommodate the rapid growth of virtual schools. They should also dedicate funding for independent, third party research to assess the quality of virtual learning programs.

They also urge policymakers and education leaders to:

  • Establish evidence-based cost formulas and accountability structures to govern virtual schools;
  • Address issues related to virtual instruction quality and draft legislation that measures and creates guidelines for online courses and programs;
  • Ensure an adequate number of high-quality teachers in virtual learning environments and develop guidelines for appropriate teacher-student ratios;
  • Examine the quality of principals in virtual schools and determine their impact on teacher quality and professional development; and
  • Create guidelines that prevent virtual schools from putting profits ahead of student performance.

The report also found a number of alarming statistics about virtual schools:

  • During the 2015-16 school year, virtual schools’ on-time graduation rates were 43.4 percent and blended schools on-time graduation rates were 43.1 percent, compared with 82.3 percent for all schools nationally.
  • Additionally, the student-to-teacher ratio at virtual schools (34 students per teacher) was more than double that of public schools (16 students per teacher).
  • These schools also enroll fewer minority students and low-income students when compared to public schools.

Although a significant amount of virtual school legislation was introduced during the 2015 and 2016 legislative sessions, limited progress was made towards regulating virtual schools. Today, there are few, if any, established cost formulas or accountability structures in place that govern virtual schools. There has also been little continued progress in addressing issues related to virtual instruction quality and creating legislation that regulates online courses and programs.

Obtaining more data and third party, independent research is critical to ensuring all students have access to the best online learning options and cutting-edge education programs. Before policymakers allow the continued expansion of virtual schools, more comprehensive research is needed to address key questions regarding virtual school regulations, funding and overall performance.

Find the report on the Great Lakes Center website:


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Online Schools Continue to Fall Behind

Online school outcomes continue to be consistently below traditional public schools. This, according to the 4th Annual Virtual Schools Report published by the National Education Policy Center (NEPC) and funded by the Great Lakes Center for Education Research and Practice.

NEPC 2016Even though this finding has been well known for some time, these schools continue to expand:

With key providers vigorously lobbying legislatures and national organizations promoting school choice, virtual schooling now has a firm foothold: 30 states and the District of Columbia allow full-time virtual schools and blended schools to operate, and even more states allow, or in some cases require, one or more courses to be delivered online to district public school students.

…our findings indicate for-profit EMOs continue to dominate and increased their market share from 2012- 13 and again from 2013-14.

Not all online schools are alike:

Our findings indicate that district operated virtual schools and blended schools, as well as virtual schools and blended schools operated by nonprofit EMOs, or no EMO at all, are more likely to perform better.

The problem is the lack of transparency. And as a result:

There is not a single positive sign from the empirical evidence presented here. Given this picture, continued expansion seems unwise. More research is needed; and to enable such research, state oversight agencies need to require more, and better refined, data.

The study’s recommendations:

  • Slow or stop the growth  of virtual schools;
  • Specify and enforce sanctions for virtual schools  if they fail to improve performance;
  • Require virtual schools and blended schools to devote more resources
    to instruction, particularly by specifying a maximum ratio of students to teachers;
  • Ensure that virtual schools fully report data related to students and teachers;
  • Design new outcome measures;
  • More research to identify funding and accountability mechanisms.

Read the report.

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On-line School Michigan Educational Partnerships Costs Districts Millions

Like many public schools, Ithaca Public Schools thought they saw a way to compete with on-line charter schools, and make some easy money in the process. Instead, they created a $1 million budget hole.

2016-02-29_11-20-43As reported in Mt. Pleasant’s Morning Sun, Ithaca hired an on-line school to create a cyber school of their own.

[Ithaca Schools hired] Alma-based Michigan Educational Partnerships to run the district’s iSchool, paying 90 percent of per-pupil funding to the company, or about $900,000 of the $1 million the district is now required to pay back.

This doesn’t include the legal fees the district has incurred and will continue to rack up as it attempts to avoid these payments or collect them from MEP.

All of this resulted from the Michigan Department of Education’s determination that the district couldn’t offer these classes, as they had “insufficient teacher and student interaction.”

Ithaca’s not alone. Vasser Public Schools made the same mistake.

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Online School Students Falling Behind

The Detroit Free Press reports that “Students attending online charter schools nationwide are lagging far behind peers who attend traditional brick-and-mortar schools, according to groundbreaking research.”


The National Study of Online Charter Schools looked at achievement data for online charter students in 17 states and the District of Columbia, finding that cyber students had the equivalent of 72 fewer days of learning in reading and 180 fewer days in math. The study is the most comprehensive look at online charters to date.

This study is different in that the reaction lacks the usual prevarication among on-line school advocates:

Greg Richmond, president and CEO of the National Association of Charter School Authorizers, said in a statement that the results are “deeply troubling.”

The story made special mention of Michigan on-line schools, known as “Cyber Charter” schools:

The last time the state released a top-to-bottom ranking of schools — based largely on test scores — Michigan Virtual Charter Academy was ranked at the 3rd percentile, meaning 97% of the schools in the state performed better. Michigan Connections Academy was ranked at the 26th percentile.

Read the story on the Free Press website.

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Executive Salaries at K12, Still in the Millions After Lost Bonuses

Executive salaries at K12, Inc. more than doubled over the last 5 years, and would have tripled if K12’s stock price hadn’t dropped. As reported by Morningstar, K12’s former CEO, Ron Packard continued to draw one of the companies highest 2014 salaries, over $4 million. It’s current CEO took a pay cut, from $9.5 million to $4.3, due almost certainly to lost bonuses based on K12’s falling stock price.


See the details here.

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