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Regulators Are Catching Up to Virtual Charter School Growth, But Fraud Persists

By Henry Kronk
January 01, 2020

Virtual charter schools and blended programs have continued to grow in American secondary education. In the 2017-18 school year, just under 300,000 learners were enrolled in full-time remote programs, while 133,000 studied in a blended program. While the sector long enjoyed less oversight and public attention than brick-and-mortar counterparts, that has begun to change in the past few years. But despite this increased regulation, instances of fraud have increased in the sector.

In December, the Education Commission of the States (ECS) published a rundown of state legislation passed between 2017 and 2019 relating to virtual charter schools. (ECS is a non-partisan federally-mandated group that tracks education policy at the state level.)

According to the report authored by Ben Erwin, 106 bills were introduced in 36 different state capitols in the past three years. Of these, 45 were enacted.

U.S. States Introduced Over 100 Bills Relating to Virtual Charter Schools Over the Past Three Years

Erwin writes that they tended to fall into three different categories: attendance and engagement; authorizing and governance; and funding.

Speaking broadly, most states significantly increased regulation and oversight of virtual charter schools, while also increasing funding and financial transparency. Much of this legislation directly addressed ongoing concerns about these publicly funded entities.

For example, poor tracking of student attendance, engagement, and truancy has allowed many virtual students to slip through the cracks. It has also opened the door for fraudulent behavior. In early 2018, Ohio regulators discovered that the Electronic Classroom of Tomorrow (ECOT) could show that just 6,300 of their supposed 15,300-strong student body were actively learning and attending the school. As a result, the school was fined $80 million and subsequently closed.

Many states have since expanded their reporting requirements of virtual charter schools. Missouri even enacted a bill that ties month-to-month funding directly to student attendance and participation. (Each charter school receives a pre-specified sum from the state for every student they teach.) If a learner begins to miss class for a certain period of time or the school fails to account for it, they will lose that per-student funding. The legislation also allows school districts to negotiate the per-student price afforded to virtual students.

States Have Sought to Solve Issues of Fraud, Truancy, Accreditation, and More

For related purposes, Indiana mandated that students and parents go through an annual orientation process before a learner can begin studying remotely.

While virtual charter schools are less expensive to run in the long run, there are significant upfront costs associated with both opening a new school and getting learners the devices and tools they need. Georgia in 2018 agreed to cover 25% of the costs of software, devices, and other IT tools needed to teach students remotely.

Some believe that the increase in state legislation regarding virtual charter schools is a direct reflection of the cost-saving measures they promise. Representing the National Education Policy Center (NEPC), Alex Molnar wrote in a May 2019 report that, while these schools tend to show poor academic performance, “the promise of lower costs—primarily for instructional personnel and facilities—continues to make virtual schools financially appealing to both policymakers and for-profit providers.”

States have also boosted and strengthened accreditation efforts. In 2019, Nevada created the State Public Charter Authority to oversea all virtual charter school accreditation. Oklahoma, meanwhile, began subjecting virtual charter schools to the same financial and reporting audits as public districts.

Many of these changes follow the recommendations of the NEPC and Alex Molnar (cited above). “The growth and geographic reach of full-time, taxpayer-funded virtual schools should be regulated,” Molnar writes. “At present there are serious questions about the effectiveness of many models of virtual schooling. Until these questions can be adequately addressed, policymakers should limit or consider a moratorium on their growth.”

According to Erwin and the ECS, this advice has in part been heeded. Besides the states that took no action on the schools, California placed a two-year moratorium on all non-brick-and-mortar charter schools.

The Virtual Charter School Nut Has Yet to Be Cracked

But despite this increased interest, communities and states have still found issues with virtual charter schools. In July, regulators found that the Indiana Virtual School and the Indiana Virtual Pathways Academy had been inflating their enrollment by 100%—similar to ECOT. They kept on their roster nearly every student they kicked out, students who moved, and even a student who had died—receiving taxpayer funding for each.

Indiana capitol building in Indianapolis
The Indiana State Capitol Building in Indianapolis. Daniel Schwen, Wikimedia Commons.

Oklahoma’s Epic Charter School went a step further. As revealed by an investigation this summer, the school allegedly recruited homeschooled and privately enrolled students and provided families $800-$1,000 in ‘student funds’ as an incentive. These students received minimal instruction, but still allowed the school to collect the allotted per-student amount.

Earlier in May, the San Diego district attorney’s office indicted 11 people in yet another virtual charter school fraud scheme. A3 Education, like Epic and Indiana Virtual Schools, enrolled students who did not study at their institution. The company at one time operated 19 different virtual charter schools. Among those charged were company founders Sean McManus and Jason Schrock, along with a Dahesa School District Superintendent Nancy Hauer. Prosecutors said the scam involved a total of $80 million.

While legislators have begun to catch up to virtual charter school fraud, it’s unclear how effective increased oversight will be. After all, 14 states did not even introduce a bill relating to virtual charter schools in the past three years.

It should be said that not all virtual charter schools are created equally. Virtual charters operated by for-profit companies tend to be fewer and further between, but enroll significantly more students. Again, according to Alex Molnar and the NEPC, “Virtual schools operated by for-profit [education management organizations] (EMOs) were more than four times as large as other virtual schools, enrolling an average of 1,345 students. In contrast, those operated by nonprofit EMOs enrolled an average of 344 students, and independent virtual schools (not affiliated with an EMO) enrolled an average of 320 students.”

Schools Vary by Organization

The subject of fraud—alleged or confirmed—among virtual charter schools obscures something potentially more significant: most virtual schools elicit terrible student achievement. There has been much debate as to why. But Molnar writes that the orgnization of a charter school is tied to student achievement:

Among virtual schools, far more district-operated schools achieved acceptable state school performance ratings (56.7% acceptable) than charter-operated schools (40.8%). More schools without EMO involvement (i.e., independent) performed well (59.3% acceptable ratings), compared with 50% acceptable ratings for schools operated by nonprofit EMOs, and only 29.8% acceptable ratings for schools operated by for-profit EMOs. The pattern among blended learning schools was similar with highest performance by district schools and lowest performance by the subgroup of schools operated by for-profit EMOs.

Again, it’s promising that states have begun to wake up to virtual charter school fraud. But it remains unclear how widespread the issue is.

Featured Image: Rawpixel, iStock.