On Tuesday, the New York Times published a critical story on K12 Inc, the largest player in the for-profit K-12 online learning industry. Today, the publicly traded company's stock is down more than 20 percent from where they were at Monday's market close.
But will the negative reaction last? Education expert Andrew Rotherham doubts it, pointing out that for-profit colleges' shares plunged after media reports focused on their agressive recruiting techniques and debt-ridden graduates earlier this year, but have since largely recovered. (The for-profit college industry also benefited from the news that the Education Department would be backing away from the toughest of its planned new regulations governing its business model .)
The Times story revealed that only a third of K12 Inc.'s online students are making adequate yearly progress on state standardized tests--a measure set by the federal No Child Left Behind law. Teachers told the paper that they felt pressured to pass students who did little or no work so that the company could continue to collect public money for the students it enrolled. Some teachers also said they were forced to take on as many as 70 to 100 students in each of their classes. (We wrote about the problem of online classroom size earlier this year.)
Even as most of its students underperform on state tests, the virtual schools have been very profitable for the publicly traded company. One of K12's schools is expected to make $72 million this year. The company spends hundreds of thousands of dollars lobbying lawmakers.
K-12 gets an average of $5,500 to $6,000 from state and local governments for each cyber pupil it enrolls. In a statement, K12 said it costs about $10,000 per pupil to educate a kid in a brick and mortar school, which means that the cyber-program is saving taxpayers money. The CEO also says many students who enter K12 online programs were behind grade-level and struggling at their former schools, which explains their low test scores.
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