These Charter Schools Tried to Turn Public Education Into Big Business. They Failed.

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It takes time, and nearly infinite patience, to build academically strong networks of schools from scratch. Investors aren’t used to waiting, though.

Illustrations by Shutterstock

More and more these days, Americans think about schools using the language of business. Superintendents are “CEOs.” Districts manage “portfolios” of schools. And pundits talk obsessively about American schools’ “competitiveness.”

But we don’t always like them to act like businesses, particularly when it comes to having an overt profit motive. Partly as a result, for-profit public charter schools—at least the brick-and-mortar variety—are slowly dying in some states. Once touted as a model that would reduce inefficiencies in public education and achieve economies of scales by operating schools in multiple states, for-profit charters have fallen out of fashion. Charter schools in general are becoming more popular across the country, but since the early 2000s, for-profit charter operators have lost ground to their nonprofit peers. And their failure, in large part, has been the result of bad business plans—something the companies themselves freely admit. 

Edison Schools—once the biggest name in the for-profit charter industry—partnered with 130 schools (some noncharter) in the early 2000s and fully managed 80. It now manages only five. In 2000, Advantage Schools, another for-profit chain, enrolled more than 10,000 children across the country. Today it enrolls zero. New Orleans hired several for-profit companies to manage some new charter schools after Hurricane Katrina. But by 2013 all of them had disappeared, their schools taken over by nonprofit operators. In recent years, lawmakers in Mississippi, Ohio, and Tennessee have all taken steps to curb the growth of for-profit charters or ban them outright.

Nationally, in 2007 for-profit management companies ran almost half of charter schools that are part of chains or larger networks of schools. By 2010, the most recent year the figures were compiled, the number had dropped to 37 percent, according to the National Alliance for Public Charter Schools. Gary Miron, a professor of educational leadership at Western Michigan University, says for-profit brick-and-mortar charter schools are by no means gone yet—and their online counterparts, which run degree-awarding charter schools on the Web, in particular, continue to flourish. But large for-profit operators with aspirations of operating scores of brick-and-mortar charter schools nationally have become something of an anomaly.

Their downfall has much to teach us not only about for-profit charters but about American educational values more generally, including a preference for locally run schools. 

Charter schools began to take off nationally in the mid-1990s. The idea of independent organizations or individuals running public schools with public dollars was attractive for those who thought government-run education had steered itself into a rut. In this vein, for-profit charter management organizations became popular as an antidote to what critics considered mismanaged, inefficient public school systems. Most of the largest chains targeted low-income students in cities under the theory they could trim the fat out of public education and thereby turn a profit while improving services for kids. Investors liked the idea, and for-profit charters expanded quickly.

But the schools struggled to make money and offer a quality “product.”

“You can’t make a profit and get good results,” says James Merriman, the CEO of the New York City Charter School Center, an advocacy organization that seeks to promote charters in the city. He noted “any dollar converted from being used inefficiently in an inner-city charter school is needed in the school.”

The for-profit founders made an assumption that it turns out doesn’t fly in the complicated realm of American schooling: They presumed that struggling schools flounder and fail mostly, if not only, because of inefficiency. 

Steve Wilson, the former CEO of Advantage and current president of Ascend Learning, a nonprofit charter chain in Brooklyn, says running schools was a far more complicated affair than most people in the for-profit industry anticipated.

While researching his book Learning on the Job: When Business Takes On Public Schools, Wilson examined the records of dozens of for-profit education companies. Most tell a similar story (one that won’t come as news to most educators): Building a good school is about much more than building a good business.

“It’s bad curriculum, it’s weak teaching, it’s poor pedagogy,” he says. “All of those things have to be fixed and changed—and we knew very little about that then.”

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Dayton View Academy charter school in Sept. 2011.
Dayton View Academy, an EdisonLearning charter school in Ohio, in September 2011.

Screenshot courtesy of Google Maps

The decline of for-profit charters underscores another fundamental, and probably immutable, fact about American education: It’s a local, not national enterprise; states pride themselves on the distinctness of their laws and educational approach. Charter school laws and business regulations vary across states so drastically that a single management company usually cannot run the same kind of operation in multiple states, which makes economies of scale impossible to achieve. For instance, some states offer charters blanket waivers from most traditional public school requirements while others require them to follow many or most of the rules that apply to public schools.

This regulatory boondoggle was part of what brought down Edison Schools, once the largest for-profit charter manager. In the early 2000s, Edison’s 130 schools were scattered across 22 states. At one time, the company managed more than 80 district offices to accommodate them—far more than anyone had planned for.

Michael Serpe is the director of communications for EdisonLearning—the new name for Edison Schools. He says school management is no longer its focus. (It’s now shifting toward online curricula and providing specific services to schools instead of full management.) He says opening schools across multiple states ruined Edison’s intended business model, which was predicated on the economies of scale that only multistate operations could bring.

“The original concept was that we could be efficient by sheer volume,” Serpe says. Edison planned to centralize the operations side, including payroll and some parts of hiring.

That never materialized. Efficiency, Serpe says, was “completely undercut” by local variances. Edison had to hire dozens of people simply to ensure they complied with the sometimes wildly different regulations.

“We were working in schools across so many states that the economy of scale was just never built,” he says.

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One of the biggest lessons from for-profit charters’ struggles? It takes time, and nearly infinite patience, to build academically strong networks of schools from scratch.

Investors aren’t used to waiting, though. Wilson says Advantage’s investors balked at sitting around while school operators sifted through state regulations and tried to build strong educational programs. Instead, they maintained tunnel vision about hyperfast growth—and hyperfast revenue.

“You’d have to say, we have $5 million in revenue now, but we’ll have $10 million next year and 15 after that,” Wilson says. “If you didn’t, why would they invest in you and not the website down the street?”

This encouraged dangerously fast growth. And because the vast majority of states would only grant charters to one or two schools for each company, they had to cross state lines to open more schools. By 2000, Advantage had schools in Massachusetts, Texas, Illinois, Michigan, New Jersey, Pennsylvania, and the District of Columbia.

Because schools couldn’t move this fast, investment dried up. Thomas Toch, an education-policy expert at Georgetown University’s McCourt School of Public Policy, says that without the huge amount of capital necessary to start and run a school, large for-profit management companies stopped opening schools and new organizations found it difficult to get started.

Without this need to attract and please investors, schools managed by nonprofits can move much more slowly and deliberately—mastering their model before opening more doors. Wilson says this is why schools managed by nonprofit charter management organizations—like Success Academy, KIPP, and Uncommon Schools—have been much more successful than their for-profit counterparts.

Now that Wilson runs a small nonprofit charter chain that operates nine schools in Brooklyn, he can clearly see the differences. Nonprofits, he says, are started by “great educators” who are often happy to open just one, or a handful, of schools, and stop.

 “We are now thinking about improving teaching. That’s what 99 percent of the conversation is about,” Wilson says, “and that’s what the passion is here.”

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The struggles of for-profits helped reveal one final truth about American education: Even though companies and individuals make loads of money off of education every day (just think about the publishing giant Pearson), American politicians and citizens are hesitant to support schools looking to cash in.

This negative perception led to a series of laws that made it more difficult to open and operate charter schools run by for-profit managers in several states—something Toch says is becoming increasingly common. In 2010, New York banned new charter schools from using for-profit managers—a demand championed by the state’s teachers union. Mississippi, Washington, Tennessee, New Mexico, and Rhode Island have similar bans.

Other states, like Massachusetts, have such high standards for for-profit management companies that they tend not to open. Only one for-profit management company operates in the state, and it only manages three schools. 

Merriman says one question always loomed over the for-profit charter school movement: Why should investors be getting money that could go toward students? “You can see emotionally … that’s a hard story to sell,” he says.

Teachers unions often championed the regulation changes. Schools with a profit motive were unlikely to allow their teachers collective bargaining rights, which Toch said made them a “natural enemy” of the unions. They were able to use the public’s already-existing skepticism of companies that sought to profit off of education to make it more difficult for them to open.

Serpe says this skepticism affected all charters managed by for-profits, regardless of whether they were successful. “It was a pox on all your houses,” he says.

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For-profit schooling continues to thrive in a less temporal realm.

A recent report by Gary Miron found that many former management companies have shifted into the online space, which industry experts say is more cost-efficient than physical schools.

Virtual schools have not been immune from the controversy of their brick-and-mortar equivalents. Recent studies have found poor academic growth in online charters—run by for-profit and nonprofit management companies, though the largest operators of virtual charter schools are for profit. The California attorney general is now investigating the for-profit company K12, the country’s largest online charter manager.

Todd Ziebarth, the senior vice president for state advocacy and support for the National Alliance for Public Charter Schools, says he expects that investigations like this to continue, given the poor performance of virtual schools, and that states will begin changing their policies as a result.

Miron is quick to note that for-profit brick-and-mortar charters still exist, and some are thriving. But most of the biggest players today operate in single states or regions, often targeting particular student populations. Michigan’s National Heritage Academies, for instance, manages 81 schools across nine states, but more than half are located in Michigan. Many of the schools promote conservative values, and they tend to attract students who are wealthier and whiter than your average charter school. 

And many of the large for-profit companies that once ran dozens of schools still exist; they’ve just, like Edison, shifted their business model. So perhaps there is one final lesson to be learned: It’s far easier to keep an education company alive than it is to build a high-quality network of schools.