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California Virtual Academies (CAVA) oversees nine virtual charter schools across the state of California. Virtual charter schools are public schools that provide online instruction. Students complete assignments individually rather than attending a brick-and-mortar school. State tax records and the schools’ charters specify that CAVA schools are independent nonprofit charitable organizations, but these schools are moneymakers for K12 Inc., a publicly traded company and the largest for-profit virtual school provider in the United States. CAVA is a subsidiary of K12 Inc. and its schools run in lockstep with their parent company’s deceptive and harmful business practices.¹

K12 Inc. receives substantial scrutiny from the media and advocates given its market share and listing on the New York Stock Exchange. But a growing body of research and national media reports show that, on average, fully virtual schools perform much worse than brick-and-mortar schools serving similar populations.² For instance, students at CAVA schools significantly underperform the state average. In the 2015-16 school year, the CAVA schools @ Los Angeles’ graduation rate was 66 percent, far below the Los Angeles School District’s average of 92 percent and the state’s average of 84 percent.³

In 2016, then-California Attorney General Kamala Harris announced a court-approved settlement in which K12 Inc. would repay California $8.5 million—$2.5 million for inflated attendance figures and $6 million for costs ensured by the attorney general’s office—regarding aggressive marketing campaigns and inadequate instructional supports. This settlement included no admission of fault, but Harris’s office alleged that K12 Inc. and CAVA used misleading advertising to recruit students even if they were unlikely to be successful in a virtual program.⁴ Once enrolled, many students did not receive adequate instruction. CAVA instructed teachers to mark a child in attendance if they logged in for at least one minute a day in order to maximize the public dollars allocated to each school.⁵

These types of concerning outcomes among for-profit virtual charter schools are not unique to California. Schools managed by K12 Inc. nationwide struggle to match student outcomes at other public schools, even as the company’s executives receive multimillion-dollar compensation packages.⁶ Alex Molnar and others, “Virtual Schools in the U.S. 2017” (Boulder, CO: National Education Policy Center, 2017), available at http://nepc.colorado.edu/files/publications/RB%20Virtual%20Schools%202017_0.pdf.] Rather than address these challenges and rework instructional strategies to improve outcomes, K12 Inc. has misrepresented student performance—leading to shareholders filing multiple lawsuits.⁷ They have also defended their outcomes, stating that policymakers use “broken” accountability measures to evaluate school performance and their schools serve struggling students.⁸

Virtual instruction takes many forms: virtual courses supplementing what is available at traditional brick-and-mortar schools, blended schools where students receive substantial instruction online while also having access to face-to-face teacher support, and fully virtual schools with no in-person instruction. The prevalence of all of these types has grown steadily.⁹

Limited online coursework can fill an important need in public education, especially within secondary schools. For example, 24 states develop their own virtual education content or partner with an outside entity that provides virtual material, in order to offer students greater flexibility to take additional credits.¹⁰ These courses can help students make up credits or expand course options in districts or schools where there are not enough students or available staff to teach full classes on specific subjects, such as some languages. In fact, the enrollments in language courses have grown more significantly than any other subject offered among state virtual schools and now account for about 12 percent of all state virtual enrollments.¹¹

Coursework in fully virtual schools usually entails students completing their work alone, at their own pace. Students in fully virtual charter schools interact in real time with a teacher for fewer hours in one week than students in brick-and-mortar schools do in one day.¹² Overwhelmingly, research shows that fully virtual schools underperform blended or brick-and-mortar schools.¹³ Molnar and others, “Virtual Schools in the U.S. 2017”; Miron, Shank, and Davidson, “Full-Time Virtual and Blended Schools.”] Yet the number of students enrolled in fully virtual schools continues to grow. In the 2016-17 school year, virtual schools enrolled an estimated 295,518 students nationwide.¹⁴ Of those students, 76 percent—or 223,634—enrolled in fully virtual charter schools.¹⁵ Fully virtual public schools and fully virtual charter schools are both public, but virtual charter schools are operated by companies or nonprofits rather than public school districts or the state.

While K12 Inc. is well known as a for-profit company and their schools do not hide their affiliation, many independent virtual charter schools bury their connections to for-profit companies. Many states bar for-profit companies from receiving public education funding, so many of these schools establish nonprofit boards to accept the funds but contract operations and management to a for-profit entity.¹⁶ For example, the Electronic Classroom of Tomorrow was Ohio’s largest fully virtual charter school until it closed in 2018 because it could not afford to repay funds to the state for students whose enrollments it could not verify.¹⁷ While it was governed by a nonprofit organization, it had multimillion-dollar contracts with for-profit companies owned by the charter’s founder.¹⁸

Laws and regulations have not kept pace with the growth of virtual charter schools. While 27 states have online charter schools, there are significantly different policies in place from state to state to measure student attendance and engagement in fully virtual programs.¹⁹ According to a 2015 report by the Center for Reinventing Public Education, only five states have different funding structures for online versus brick-and-mortar charter schools.²⁰

As a result, many for-profit operators have taken advantage of fully virtual instruction to boost their bottom line, driving dollars away from instruction with little regard for student outcomes.²¹ For instance, K12 Inc. awards its executives hefty bonuses if they can reduce the cost of the instructional program and increase profits.²²

These practices aren’t limited to elementary and secondary schools. Many for-profit colleges, such as the University of Phoenix and DeVry University, also have abysmal academic outcomes, employ deceptive marketing, and structure their tuition practices to maximize possible revenue from federal financial aid.²³ However, new policies to hold career training programs accountable for results and to help students navigate financial hardship as a result of their enrollment have been implemented over the past decade.²⁴ Similar protections do not yet apply to elementary and secondary schools.

To shed light on the performance and spending of virtual charter schools managed by for-profit operators, the Center for American Progress compiled a new analysis of for-profit virtual charter schools’ outcomes and financial management. The authors of this report pulled the outcomes of the largest for-profit virtual charter schools in the five states with the greatest percentage of virtual charter school enrollment and compared them to the outcomes of their respective state as a whole and nearby urban school districts serving greater percentages of students who qualify for free and reduced-priced lunch.

For-profit virtual charter school operators and their supporters often rationalize troubling academic outcomes by claiming that these schools serve high-need students.²⁵ However, the analysis conducted by the authors of this report, multiple investigations, and research reports demonstrate that these schools perform worse than nearby student populations with significantly higher percentages of low-income students. Academic growth rates are also far below state expectations.²⁶

If not positive academic outcomes, what do these dollars buy? The authors of this report reviewed the financial disclosures of K12 Inc. and found that the organization spent more than $11 million on the compensation of five top executives in 2017 after spending over $15 million in 2016 and nearly $38 million on advertising in fiscal year 2018. K12 Inc.’s executive performance-based compensation structure also does not consider student academic outcomes.²⁷

The authors’ findings are only one example among numerous reports and news stories highlighting the troubling academic outcomes and misplaced priorities of virtual charter schools managed by for-profit companies. CAP recommends that states ban for-profit operators from opening and managing virtual charter schools. States also should implement strict, differentiated oversight measures for fully virtual charter schools—such as enrollment growth caps based on performance and adjusted per-pupil funding levels for virtual schools—to ensure that schools use public funds to improve academic outcomes. These policies would help distinguish the outcomes and practices of fully virtual charter schools managed or closely tied to for-profit companies from the rest of the charter school sector, which offers many students innovative, high-quality programs.²⁸

CAP compared the outcomes of for-profit virtual charter school students with the outcomes of other students in the same state. The authors of this report selected the largest virtual charter school that is managed by or contracts the majority of its operations to a for-profit company in five states that have a for-profit virtual charter school and where at least 1.5 percent of the student population is served by virtual schools, based on National Center for Education Statistics data from the 2013-14 school year—Colorado, Idaho, Nevada, Ohio, and Pennsylvania.²⁹

Given that enrollment in virtual schools is growing, these percentages are likely even larger in more recent school years.³⁰ The authors compared the performance of these schools to their respective state as a whole and the state’s largest school district.

Three of the selected schools are managed by the two largest for-profit companies that operate virtual charter schools in the United States: K12 Inc. and Connections Education. As of the 2016-17 school year, K12 Inc. was the largest virtual charter school operator, serving an estimated 30 percent of all students enrolled in full-time virtual charter schools, while Connections Education served 17 percent.³¹

The authors pulled student demographic data as well as achievement and outcomes data that reflect key elementary and secondary school outcomes for the sampled schools, districts, and states from the 2016-17 school year. Poverty data are included in Table 2 and English language and disability status data are available in the appendix. The authors pulled data on third-grade proficiency in English language arts, considering that children who are not proficient by the end of third grade are significantly less likely to graduate; eighth-grade math, because it is a key measure in algebra readiness; and high school graduation rates, to measure long-term student achievement.³²

The authors also sought out available data on the public funding allocated to the sampled schools by pulling from the charter board’s annual 990 forms, annual financial reports, and state funding data. These figures come from different sources and likely have variability in reporting, so these numbers have limitations and are only included in order to provide a general point of comparison.

In general, virtual charter schools operated by for-profit companies performed significantly worse than averages in their state, and also performed worse on key measures than large urban school districts within their states. This comparison to school districts that serve a higher percentage of students who qualify for free or reduced-price lunch shows that the poor performance of virtual charter schools operated by for-profit companies is not necessarily due to the fact that they serve students with greater needs.

Specifically, the authors found that:

• For-profit virtual charter schools graduate about half of their students, which groups them among the lowest performing schools in their state. All of the schools studied for this report failed to gradate more than 60 percent of their students. Under the federal Every Student Succeeds Act, all high schools that fail to graduate more than 67 percent of their students are grouped within states’ lowest performing schools.³³ These schools must receive comprehensive support. All of the sampled for-profit virtual charter schools miss that target and, therefore, would be grouped among each respective state’s lowest performing schools.

Extended graduation rates, or the percentage of students who graduate in 5 or 6 years—which is an alternative accountability measure for schools that serve high-need populations—were not much better. For instance, Ohio Virtual Academy’s five-year graduation rate for the 2015-16 school year was 58.2 percent—an increase of only one percentage point from its four-year graduation rate.³⁴

Interestingly, K12 Inc. has published graduation rates significantly higher than those calculated based on state and federal requirements. For example, for the 2014-15 school year, K12 Inc. reported that its graduation rate at Ohio Virtual Academy was 92 percent, but the graduation rate for accountability purposes was 53 percent. During her confirmation process, now-U.S. Secretary of Education Betsy DeVos, an early investor in K12 Inc., defended virtual schools by citing the inaccurate numbers reported by K12 Inc.³⁵

• For-profit virtual charter schools have much lower graduation rates than their respective state as a whole and nearby urban school districts that generally serve more low-income students. The sampled virtual charter schools graduate significantly lower percentages of their students than the state average and a nearby urban school district. Take Pennsylvania Cyber Charter as an example. Its graduation rate is 32 percentage points fewer than the state average and 12 percentage points fewer than the School District of Philadelphia, which serves more than double the percentage of economically disadvantaged students. (see Table 2) With the exception of Idaho Virtual Academy, all of the sampled schools serve lower rates of low-income students than nearby urban school districts.

• For-profit virtual charter schools underperform the state average for third-grade English language arts and eighth-grade math proficiency. The sampled schools have lower proficiency rates for key academic benchmarks than the average rates for their respective state. The difference between the scores varied significantly across the five states studied for this report—from 4 percent to 19 percent—but the trend was consistent.

• Most of the large virtual charter schools in CAP’s analysis also fell far below states’ expectations for students’ academic growth. At Colorado’s GOAL Academy, the median student growth compared to students with a similar score history was in the 38th percentile, while the median student statewide was in the 50th percentile.³⁶ Ohio Virtual Academy received a component score of F for student progress in 2017, with significant evidence that “students made less progress than expected.”³⁷ At Nevada Virtual Academy, the elementary school’s overall rating was 1 star out of 5 stars and it received only 8 out of 35 possible points for student growth.³⁸ At Pennsylvania Cyber Charter School, there was significant evidence that the school did not meet the standards for Pennsylvania academic growth in both math and English language arts in 2017.³⁹ Academic growth data for Idaho Virtual Academy are not publicly reported, as the Idaho State Department of Education’s accountability system will include growth data for the first time for the 2017-18 school year.⁴⁰

• Virtual for-profit chart schools offer a poor return on public investment. Virtual for-profit charter schools receive scarce public funding, but use these public dollars for marketing, lobbying, and exorbitant executive compensation packages, as well as siphoning off a portion of their public dollars for profit despite poor academic outcomes.⁴¹

K12 Inc. and Connections Education declined to comment on the conclusions of the report. ⁴²

In response to reports that shed light on GOAL Academy’s outcomes, Ken Crowell, founder and former executive director, warned critics against focusing on test scores. In an interview with Education Week, he said, “You’ve got to be really careful when you throw around statistics. . . . If we did not give an opportunity to those students who had not previously been successful, we’d be no better off as a society than just letting those kids hit the street.”⁴³ In response to public controversy related to Pennsylvania Cyber Charter School, CEO Michael Conti has said that the school “has been at the forefront of commonsense reform,” and has conducted internal evaluations to “maintain its strong reputation among state education officials, the general public, and our students.”⁴⁴

Recent research on for-profit virtual charter schools is consistent with the authors’ analysis. Stanford’s Center for Research on Education Outcomes (CREDO) and the National Education Policy Center have both studied the achievement of virtual schools. Both organizations’ studies looked at different subsets of the online school market and reported that virtual charter schools have significant performance challenges.⁴⁵

CREDO compared the academic progress of virtual charter school students to the outcomes of their peers in traditional public schools. The study found that students in all virtual charter schools, regardless of their management structure, had much lower academic growth compared with students in traditional public schools, while brick-and-mortar charter schools improved outcomes. Using CREDO’s days-of-learning calculation, attending virtual charter schools was equivalent to missing between 129 to 172 days of learning in math instruction.⁴⁶ The report does not disaggregate the effect of online charter schools by nonprofit and for-profit operators. However, a subsequent report using the same methodology, which looked at the effects of particular charter management organizations, found that charter schools operated by K12 Inc. averaged a learning loss of equivalent to -0.21 standard deviations—or 151 days of learning—in math, and 0.11 standard deviations—or 79 days of learning—in reading.⁴⁷

Moreover, CREDO found that the mobility of these students was likely not the reason for these negative outcomes, as the mobility rates of these students before they enrolled in virtual charter schools is similar to the mobility rates of students in brick-and-mortar schools.⁴⁸

The National Education Policy Center’s analysis compiled state school performance ratings for virtual schools and found that state education agencies rated barely more than one-fourth—27 percent—of all virtual schools operated by for-profit operators—not just charter schools—as acceptable and a little more than half—53.8 percent—of district-operated virtual schools as acceptable.⁴⁹

While this report’s authors’ analysis focused on for-profit virtual charter schools, the above studies show that all virtual schools have significant challenges.

Almost by conception, virtual schools have challenges providing adequate instruction and needed supports, but for-profit operators’ incentive to lower instructional costs exacerbates these problems.

Too few teachers and not enough support

Virtual charter schools advertise their ability to serve struggling students who need more flexibility, such as over-age, under-credited students or those with serious medical conditions.⁵⁰ Yet a series of recent studies has confirmed that low-performing students in fully virtual courses perform worse than students in blended or in-person courses.⁵¹

It is not surprising that virtual charter schools operated by for-profit companies have particularly poor outcomes for struggling students. Most for-profit virtual schools are devoid of critical supports for student learning and motivation.⁵² For example, the average student-to-teacher ratio in these virtual schools is significantly higher than in brick-and-mortar schools: The national average ratio in public schools is 16 students to 1 teacher for the 2015-16 school year, while virtual schools reported a student-to-teacher ratio of 45 to 1.⁵³ Some virtual for-profit charter schools have much higher ratios. The Florida Center for Investigative Reporting released a confidential document from K12 Inc. showing that in 2010 the student-to-teacher ratio for some of their high school courses was as high as 275 to 1.⁵⁴ Charter schools are mostly ex