How Does Profit Play a Role in Education?

| October 19, 2012 | 3 Comments
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For-profit universities have come under fire for a litany of reasons. Critics claim that graduates of for-profit colleges are less likely to be employed, have high student debt, are more likely to default on federal loans and don’t receive a quality education. Congress passed legislation last summer to provide more oversight of for-profit colleges and the federal grants that often fund student tuition, and just today, and the number of colleges are diminishing.

As the for-profit university debate rages on, there’s another, highly volatile controversy around for-profit companies providing curriculum, content, and other services to school. In a recent article by Reuters News Service, educator and activist Diane Ravitch rang the alarm bells.

“This is a new frontier,” Ravitch said. “The private equity guys and the hedge fund guys are circling public education.” Some of the products and services offered by private vendors may well be good for kids and schools, Ravitch said. But she has no confidence in their overall quality because “the bottom line is that they’re seeking profit first.”

In the fringes of that debate, there has been little discussion of the handful of for-profit companies running K-12 schools, most often as charters. A recent forum hosted by the Center on Education Reform discussed the issue, focusing mostly on the positive effects that profit-seeking institutions could have on K-12 education. One company highlighted in the forum was Sabis, a family-owned business based in the Middle East, which operates tuition-free charter schools as well as tuition private schools, all over the world, including the U.S.

For-profit schools in the K-12 space are not run as outright businesses. Rather, Sabis is an “education management organization,” a designation that allows the company to bid for the right to manage charter schools. They have schools in Minnesota, Michigan, Massachusetts, New York and Louisiana. The principal argument against this model is that a company might cut corners to ensure profit levels, sacrificing quality of education. What’s more, a private company allows little scrutiny into administrative practices by teacher unions, school boards and parents. The premise behind traditional public schools is that those stakeholders provide valuable checks on school administrators.

Still, some who see a positive roll for business in education. In his book about Sabis, James Tooley, a professor of education policy at Newcastle University in England and author of From Village School to Global Brand: Changing the World Through Education, claims there are at least three clear benefits to the for-profit model: “It’s better for quality and innovation, attracts talent, and it brings down cost,” Tooley said at the recent forum. “Those are true in other areas of our lives, but they are equally true in education.”

Tooley says that education could benefit from market competition and believes that a company’s motivation for making a profit does not preclude its motivation for providing quality education. And for a school to earn a good reputation, it will have to be innovative, competitive, and rigorous, otherwise parents will look elsewhere.

Those are the conceptual arguments for the for-profit charter model. In practice, however, it might be an altogether different scenario. Parents of children enrolled at Milestone Sabis Academy of New Orleans gave the school mixed, but mostly negative reviews on a Great Schools message board. “This is the absolute worse [sic] display I have seen of professionalism in a school. Most of the teachers and administrators don’t seem to care much. My daughter came home and told me that she was told by a teacher ‘I am only here for a pay check and I do not care if you pass or fail,’” wrote one parent in January 2012. In 2010 another parent wrote, “The teachers are new and fresh, but have no clue how to deal with, much less teach the children. It could be a good school if it were not for these very important absences. The director is pleasant, but does not take to criticism well. Instead she turns the situation around on the parent.”

Sabis was criticized in a Boston Globe article for opening a school in Lowell, Massachusetts with a high student-to-teacher ratio even though the student population included many English language learners. Similarly, when Sabis won a contract to run a charter school in Brooklyn, the New York Times raised concerns about the company’s track record in Chicago, where two of its contracts were revoked.

But Tooley and others maintain that if there were a profit incentive, more people would enter the education sector. “There are some people in this world who aren’t motivated by financial gain. But, if you want to attract talent into the education space then you’ve got to bring in the profit motive,” said Tooley.

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  • del2124

    But I still don’t actually understand how charter schools make money. How do they generate profit? Do they simply have the districts pay them more money to run the school than it costs to operate?

    • An informed Education Consumer

      Charter schools (which are public schools) get paid less money per pupil than the traditional public schools. In most cases, they also have to find, build, or finance their own facilities – all for less money per student than the traditional public schools. Two decades have passed since the first charter school law was passed in Minnesota, and nationwide data shows – unequivocally – that charter schools are performing better than their host districts; all that for less funding.
      So when charter schools make a profit (or a surplus), it means that they are running their school for less cost than what they get in revenue. This profit (or surplus) – the difference between total revenue and total expenditure – is used (in well managed schools, at least) to invest back into the school’s ongoing improvement. Profit (or surplus) allows schools the financial ability to bring additional innovation, better programs, and better facilities to students without being a burden on the tax payer. When they make profit it means that they are running their operations more efficiently… and that’s what we, the taxpayers, are entitled to. We need to have our children get a superb education in the most efficient manner.
      Ms. Shwartz neglected to present that side of the argument. Instead, she turned an educational “blog” into a one-sided political manifesto. The blog above is also biased with regards to the Milestone SABIS academy of New Orleans. Out of the 19 or 20 comments on the Great Schools site that Ms. Shwartz references above in her blog, she only chose one comment to highlight – the negative comment – instead of providing a summary of all the views expressed on that site referencing the Milestone SABIS School.
      The blog is no surprise, unfortunately. Education blogs often deliberately set up smoke screens for the consumer seeking information on education.

  • gericar

    Hummm………………Not where I live.. Charters are called public schools because they get public money. They often have a specific slant… business training or uniforms… or some such thing, which attracks parents but the curriculum is not much different than the public schools. This may make a difference in that parents are supportive instead of critical. Charters here don’t perform as well as the public schools. Not to mention that they often dump the kids who have some sort of difficulty, who then end up in the public schools. Charters often don’t provide transportation which limits who can go there and often don’t provide things like speech therapy and similar services. One charter here cut the money spent on the kids to the point at which their staff made regular trips to Africa…! with my tax money! I am not sure you can call this putting money back into the school. I think Charters are often harbors for parents who are unhappy with the public schools because their own experience there has been unhappy, or someone there has told them that their kid needs help in some way and they don’t want to hear it. I would also be interested in the racial mix in charters. One charter I personally know… made parents sign a statement stating that they would not request special education. No matter how you slice this it is another attempt to “privatize.” My tax money going into private pockets. There may be some charters that are good but then they would be spending as much or more money on kids as the public school and where is the profit motive in that…