Robert Mengerink didn’t know how much an online school really costs to operate – until he started one.
When he learned this summer that the agency he heads, the Educational Service Center of Cuyahoga County, could offer a basic online program for less than half of what the state pays online schools per student, he was taken aback.
The county this fall started letting school districts enroll students in an online program that offers a computer, an online curriculum and teachers connected to the students online.
The cost? About $2,980 per student for a full course load all year. Meanwhile, Ohio pays all online charter schools about $5,700 per student, the same amount it gives a standard charter school with a building and classrooms. That rises to an average of $6,337 per student statewide after extra special education funding is added.
“You can do a quality program for less than $6,000,” said Mengerink. “That’s key. I was a little surprised that we could do it as inexpensively as this and still have a quality program.”
TRECA Digital Academy, another publicly operated provider of online K-12 education, says it can do it for about $3,600 per student.
That potential savings highlights questions that critics of online schools have been asking for years: What really happens to that taxpayer-provided money? Is most of it going to educate students? Or are schools pocketing a large profit while cutting corners for students?
Accounting for Expenses
Like all charter schools, the online schools are set up as nonprofits but often pay for-profit companies to run them. The majority of Ohio’s seven statewide online schools are operated by – or have close ties to – private, for-profit companies. More than 80 percent of students in statewide online schools attend one of those for-profit schools.
Part 2: Running an online school can cost half as much as a traditional school
Despite receiving $209 million in state money for the 2010-11 school year for about 30,000 students, online schools don’t have to give a detailed accounting of their expenses to the state. The schools don’t talk much about their books either.
“How much money is being made?” asked former State Rep. Stephen Dyer, an Akron-area Democrat, who criticized state funding of online schools in a report last year for Innovation Ohio, a left-leaning think tank. “Nobody’s coming forth with any of that. They just don’t cost that much. They don’t pay the teachers as much. They don’t have busing. They don’t have lunch ladies. It’s just a server and a couple guys to keep it up and running.”
Mengerink also wonders.
“If we can do it for that, I’m guessing the private providers can do it as well,” Mengerink said. “There’s certainly a big profit in there.”
Bill Sims, head of the Ohio Alliance for Public Charter Schools, said that expenses in the $3,000 to $4,000 range are probably not realistic and that some online education systems are more advanced than the cheaper ones. He said studies show that online schools’ costs should be similar to those of other schools.
“Yes, they don’t have buses, but they have very expensive software and systems that they need to keep updated and up to speed,” Sims said.
He previously worked for K12 Inc., the operator of Ohio Virtual Academy, one of the state’s largest online schools. Sims said that when he worked for K12 Inc., the staff never looked to cut corners to make money.
“When I was there, it was a very serious attempt to come up with the best product we could,” he said.
No buses, no lunches, no problem
Online schools still cost less than the roughly $10,700 that the Ohio Department of Education says the average school district spends per student.
Part of that comes from not needing bus drivers, not running a lunch program, not having to maintain buildings. The online schools also save costs the same way charter schools across Ohio do: by paying teachers less than the unionized ones at school districts.
District teachers statewide made an average of $45,747 in the 2010-11 school year, according to the Ohio Department of Education. Online teachers made an average of $36,850. Both averages are pro-rated for full-time equivalency.
Online schools also typically have more students per teacher than a traditional district. In the 2010-11 school year, the Cleveland schools had 14 students for every teacher, Akron 13 and Cincinnati 16. Those totals are for all full-time equivalent teachers, including speech, library, art and music teachers, not just classroom teachers.
Because of those ratios, and online schools’ need for fewer support staff, employee compensation makes up less than half of overall costs for most statewide online schools, according to the schools’ annual state audits. However, some online schools contract outside for many services.
At Ohio Virtual Academy, of the $68 million the school spent in 2010-11, about one-third went to salaries and benefits for teachers, counselors and administrators, according to its state audit.
At most traditional public schools, employee compensation makes up 75 percent to 80 percent of the budget.
Financial Reports, State Audits Offer Clues
State audits of online schools, and the financial reporting of the company that operates Ohio Virtual Academy, offer some clues about how they spend money, but they don’t answer questions directly.
The state audit of Akron-based OHDELA, the Ohio Distance and Electronic Learning Academy, highlights the difficulty in determining how profitable operating an online school is.
OHDELA’s roughly 1,800 students make it the fifth-largest online school in Ohio.
But you can’t see what it does with 75 percent of its $14 million budget. OHDELA’s last audit shows $10 million paid as a management fee to an affiliate of White Hat Management, the for-profit charter school company that has been a major player in Ohio’s charter movement.
“We spend less than half [of what traditional, public schools spend] and achieve average to above average results.”
–Electronic Classroom of Tomorrow spokesperson Nick Wilson
That fee covers instructors’ salaries, curriculum materials, software and computers. But detailed information is not included in public records.
OHDELA Vice President Robert Fox did not respond to repeated requests for comment.
Ohio Virtual Academy’s audit shows a similar pattern. About two-thirds of the $68 million the school spent in 2010-11- $43 million – went toward purchasing services from K12 Inc., the company that runs it. That includes the salaries and benefits for administrators and other management staff.
In addition to paying administrative personnel costs, the $45 million payment to K12 Inc. also covered instructional materials, software and curriculum fees and leased computers, according to the audit and the school’s financial manager.
K12 Inc. is a publicly traded company, so it files financial reports for investors and regulators. It made a $24 million profit in 2011. But it does not report exactly how much profit it makes from Ohio Virtual Academy. The academy brings in 13 percent of the company’s revenue, according to its 2011 annual report.
Seventeen percent of ECOT’s expenses are spent as a management fee to Altair Learning Management, and for “curriculum services” to IQ Innovations, which is owned by Altair founder William Lager.
Bang for the buck
ECOT spokesman Nick Wilson said ECOT gets “good bang for the buck” for the $2.7 million it paid Altair in the 2010-11 school year and the $10.9 million it paid IQ. He said those companies handle the curriculum, online content, technical services, contracts and negotiations and maintain the servers used to run the school.
While those companies may make a profit, he said, ECOT as a whole does not. He said ECOT’s board could end its contract with Altair and IQ if it wanted, but said the board does not seek competing bids for those services.
Wilson also said a $3,000 online education may not match ECOT’s.
“If I needed a car, I could get a $500 car,” Wilson said. “But it’s not the same as a nice car that can get me from Point A to Point B.”
He’d rather compare ECOT’s costs and performance to the state’s urban school districts, which spend more than the $10,700 state average.
“We spend less than half that and achieve average to above average results,” he said. “That’s how I would view it.”
Appealing cost savings
Those cost savings are appealing to traditional public schools, too.
Mengerink, who heads the county’s Educational Service Center, said he saw districts’ need for a way to add online classes. He also heard the repeated complaints that districts have about charter school funding in Ohio as a whole: The system has districts paying part of the online school’s average $6,337 per student out of their own budgets.
Here’s how that works: Districts receive state aid based on their income level. When a student from a district goes to an online school, the state deducts an average of $6,337 from the district, regardless of what it gets per student from the state.
“It’s time for the public schools to get involved in this. We ought to be delivering the online program, not some guy in a business.”
–Educational Service Center of Cuyahoga County Superintendent Robert Mengerink
Take the Parma school district, for example. Because of its tax base, the Parma schools receive $2,085 per student, Treasurer Dan Bowman said. But the state sends $6,124 for every Parma student enrolled in a charter school to that school, based on the $5,700 base and special education bonuses.
Mengerink said he wanted to find an alternative. The Educational Service Center, a public organization that provides services to districts, was a natural place to do it.
“It’s time for the public schools to get involved in this,” he said. “We ought to be delivering the online program, not some guy in a business.”
So far, 16 Cuyahoga County districts have signed up to let their students use Mengerink’s program, plus some schools in Muskingum County. Only 27 students have enrolled in the new program while districts adjust to the option, with 10 more students in the process of being added.
TRECA Digital Academy, run by a consortium of central Ohio districts, confirms that the basic cost of providing online education is far less than what online charter schools get from the state, but says that other costs bump the true price tag higher.
TRECA allows districts to pay $3,600 for each student to use its teaching, curriculum and support services. Lakewood Digital Academy and Lorain Digital Academy, charter schools started by those districts to give students an online choice, use TRECA for their content.
But TRECA spends the full $6,300 per student for the about 2,100 students enrolled in TRECA Digital Academy. That’s partly because about 72 percent of them are poor and need support services, which can include home visits by social workers.
And officials say running satellite offices around Ohio for enrollment, support and testing greatly increases costs versus having a single site. Even at that cost, TRECA is rated in Academic Watch by the state.
School officials say they consider TRECA a school for students likely to drop out, so costs are higher and results lower.
“If a school is in this to make money, all they’re going to do is give you a curriculum, the equipment and a little bit of support,” said Ray Funk, TRECA’s chief operating officer.
“How good is that for a student? That depends. There’s so much more that you can do to be successful. It all depends on how much support you have to give the child.”