Virtual Schools, many are high cost low benefit, part 2

The Cost, by Stephanie Saul

The original pitchman for K12 was William J. Bennett, the former education secretary who helped found the company in 2000. At the time, Mr. Bennett said he viewed online schools as a haven for shy children, those worried about being exposed to drugs and even those with “terrible acne.”

The company planned to sell an education package directly to parents who wanted to home-school their children. But within months, K12 had decided to tap into public education dollars.

As the company’s product has become more popular, the cost has soared.

Mr. Bennett, who left the company in 2005, originally said a home-schooling package would cost about $1,000 per student per year. Parents who wanted teacher support would pay more.

Today, K12 receives an average of $5,500 to $6,000 per student from state and local governments. The schools also receive money for federal programs.

Because online schools do not collect every type of financing that goes to traditional public schools, Mr. Packard contends that his company’s schools, on a national average, cost taxpayers 40 percent less per student.

But online schools have negligible building costs and cheaper labor costs, partly because they pay teachers low wages, records and interviews show. Parents, called “learning coaches,” do much of the teaching, prompting critics to argue that states are essentially subsidizing home schooling.

Any high school student taking economics could immediately recognize the fundamental flaws in their pricing structure,” said John E. Freund III, a Pennsylvania lawyer who represents a number of districts who are losing students to the online schools and the public financing that goes with them.

Because many states prohibit for-profit public education, the management companies for virtual schools run schools under contract with public districts or nonprofit charter schools, which also receive public money. But companies like K12 are almost fully in charge — devising curriculum, hiring teachers and principals and evaluating student performance.

Another way K12 maximizes its income is to establish schools in poor districts, which receive larger subsidies in some states. The company administers one of K12’s newest schools from Union County, Tenn., a mountainous Appalachian enclave where nearly a quarter of the residents live in poverty.

The Tennessee Virtual Academy is technically part of the local school district, which receives more per pupil from the state than most other districts in Tennessee. But of the school’s 1,800 pupils, few are actually from Union County.

Out of the state money, the Union County schools will get an administrative fee of about $400,000. K12 stands to collect almost $10 million to staff and manage the school. Dozens of other Tennessee counties, however, lost state financing when some of their students elected to go to the virtual school.

The online schools have enabled entrepreneurs like Michael R. Milken, whose company Knowledge Universe started K12 a decade ago and who remains an investor, to use education as a source of government-financed business, much as military contractors have capitalized on Pentagon spending.

Mr. Packard reports to investors every year with higher enrollment numbers and sales. On Nov. 15, he announced that the company’s online schools had enrolled more than 94,000 students. “I think online schools are becoming more mainstream,” said Mr. Packard, who was paid $5 million this year.

A sizable portion of the public money collected by K12 is rolled back into generating more business, a common practice by for-profit companies that nevertheless raises questions when the money is intended to educate schoolchildren. K12 spent $26.5 million on advertising in 2010, according to an analysis prepared for The New York Times by Kantar Media.

“Some of the cyber charter schools have fairly aggressive recruitment campaigns,” said Jim Buckheit, executive director of the Pennsylvania Association of School Administrators. “They have vans, billboards, TV and radio ads. They set up recruitment meetings in area hotels and invite parents to come.”

K12 has run thousands of the sessions, where part of the pitch is supplying computers and subsidized Internet connections for qualifying families. Dr. Seidenberger said he was surprised to see ads for online schools in the outfield at Coca-Cola Park, the stadium of the Lehigh Valley IronPigs minor league baseball team.