The Big Business of Virtual Education

For-profit companies dominate online education in Washington and Idaho, but researchers say these schools can be disastrous for kids

Nearly bankrupt, the rural Omak School District in central Washington was operating on borrowed money eight years ago. It couldn't even afford new textbooks.

Running out of options, the district turned to a Virginia-based for-profit company called K12 Inc., which specializes in operating public online schools. Washington Virtual Academy opened as part of the Omak district. It advertised across the state, attracting more and more students from outside the area. Enrollment ballooned from 1,700 to about 5,500. And with each student came more state funding.

Now, Superintendent Erik Swanson says, Omak can update decades-old curriculum materials. It can invest in new technology. It can replace school roofs.

"It's a business. And I have to operate on a business model that says I have limited revenue flow, and I have to deal with all the same things a corporation does," says Swanson, in his fifth year as Omak's superintendent.

Other school districts in Washington have made a similar decision to partner with K12 Inc., or its for-profit competitor Connections Education. These side deals give small districts the opportunity to deliver virtual education while also filling gaps in their budgets.

Consequently, the state has seen a rapid expansion in the number of students taking online courses. During the past school year, around 33,000 students statewide took at least one online course, about a 65 percent increase from the roughly 20,000 students who took online courses five years earlier. A majority of those courses are taken from a school run by a for-profit company.

The Big Business of Virtual Education
Young Kwak
Ted and Leslie Gwiazda pulled their daughter, Lala, out of WAVA, saying the school isn't good for kids with special needs.

But an Inlander review of state education data, citizen complaints and district records reveals that while the companies and schools may profit from the arrangement, students often fall further behind academically. Following national trends, students graduate at a much lower rate when attending virtual schools run by for-profits compared to brick-and-mortar schools. Fewer students successfully complete online courses overall, compared to traditional schools. And at Washington Virtual Academy, some students with special needs — often attracted to a nontraditional school setting — have been denied the specialized instruction they're entitled to under state and federal laws, despite multiple reprimands from the Washington Office of the Superintendent of Public Instruction.

Still, millions of Washington taxpayer dollars flow to for-profit companies each year, with districts and state agencies largely in the dark about how that money is spent.

U.S. Secretary of Education Betsy DeVos has supported virtual schools and was once an investor in K12 Inc., according to news reports. A proponent of "school choice," DeVos has called these schools a valuable option for rural families.

One of the major national critics of the schools, however, has been Washington Sen. Patty Murray.

"Small communities need flexible learning options to make sure that every one of their students has access to a high-quality public education," Murray tells the Inlander. "But all too often, for-profit online schools put their bottom lines above the needs of students and parents."


K12 Inc., the nation's biggest player in the online school market, currently runs two of the largest online programs in Washington: Omak's Washington Virtual Academy, including an elementary, middle and high school; and Insight School of Washington, under the Quillayute Valley School District on the Olympic Peninsula. Nearly 6,000 students attend these schools full-time in Washington.

K12 Inc. says it operates schools in 33 states. In many of those states, including Idaho, the schools are online public charter schools. Idaho law requires that all districts and charter schools publish their expense information for the public. By law, charter schools must have nonprofit governing boards.

In Washington, they're not technically charter schools. They arrived in Washington before voters approved charter schools in 2012, and are instead called "Alternative Learning Experiences." The individual school district is ultimately responsible for oversight of the programs, but the operation of the school is controlled by K12. As a result, K12 receives most of the money — millions of taxpayer dollars — to manage the schools.

In the 2016-17 school year, the Omak School District served more than 3,400 full-time students for Washington Virtual Academy, or WAVA. The state paid roughly $6,400 per student, a lower rate than normal because it's an Alternative Learning Experience school. Add extra funding for special education students, and WAVA generates an estimated $26 million by attracting full-time, out-of-district students. Omak retains just 3 percent of that as an administrative oversight fee, about $780,000. The rest of the more than $25 million is for WAVA to use to run the school, the district says.

But there's another perk for the school district. With higher enrollment, districts can increase the amount of money collected from property tax levies. That doesn't mean that Omak increases the amount it taxes its own residents — although it could, OSPI data shows. Instead, it receives more state funding through the state's "local effort assistance" program, also referred to as "levy equalization," created as a way to mitigate disparities between property-rich and property-poor school districts.

In short, for Omak, more students equals more revenue, which equals more money from state levy equalization, says Omak's fiscal administrator Scott Haeberle. Omak received nearly $6 million from levy equalization in the past school year. That's on top of what it collected from the levy approved by voters, which brought in around $2.1 million.

Overall, in the 2017 calendar year, Omak will take in $3 million more from levy equalization than it would have without WAVA students, according to OSPI.

Quillayute Valley, operating Insight School of Washington, similarly benefits. Insight has a total of 2,000 students, mostly out of district. It sees $2.7 million in levy equalization on top of $628,000, the money it normally receives from its levy. Tack on the administrative fee Quillayute Valley gets — 6 percent of revenue from state funding for the first 1,750 students enrolled in Insight, then 3 percent after that — and it makes a huge difference, says Diana Reaume, Quillayute Valley School District superintendent.

"It affects the budget to a plus," she says.

Other Washington districts have caught on. In 2015, Mary M. Knight School District in Elma, home to fewer than 200 students, entered into an agreement with national K12 competitor Connections Education to deliver a virtual K-8 school called Washington Connections Academy. It enrolled 500 students last year. It's expanding through 10th grade this school year, says Mary M. Knight Superintendent Ellen Perconti.

Mary M. Knight took two considerations into account when deciding to enter into a contract with Connections Education, Perconti says. The first: It would provide a virtual school option for Mary M. Knight students, though only a few — at most — would actually use it.

The second consideration? With a lack of state funding, the district needed any extra money it could get, she says. In order to serve its own students, it needed outside help.

"The fiscal part was part of why we looked at it," Perconti says. "We thought, 'How do we make sure we can provide the best services here, locally?'"

The Big Business of Virtual Education
Young Kwak
Spokane Virtual Learning teacher Henry Seipp teaches his class from a computer.

While the vast majority of taxpayer money these districts receive flows to K12 or Connections Education, the districts themselves do not directly oversee or manage the company's budget, district records show. Omak, for instance, monitors K12's performance. But K12 runs the school. It recruits teachers, it provides the approved curriculum, and, crucially, it advertises for new students across the state.

For Gary Miron, a researcher for the National Education Policy Center and professor at Western Michigan University, it's a concern that districts don't see K12's budget.

"The problem, for accountability," Miron says, "is that once it goes behind the veil of privacy, it's hard to know how they spend the money."


Large virtual schools operated by for-profit companies dominate the national and regional online school market, whether they operate as charter schools or work directly with a school district.

But national studies of online charter schools overall reveal grim results. In 2015, a study from Stanford University's Center for Research on Education Outcomes found that "academic benefits from online charter schools are currently the exception rather than the rule." A 2016 report by the National Education Policy Center found that student outcomes for virtual schools lag significantly behind traditional schools. It recommended that policymakers slow or stop the growth until reasons for the poor performance have been addressed.

Miron, with the National Education Policy Center, says the annual studies on virtual schools have produced "dismal" results.

"We track all these school outcomes — school performance ratings from the state, average mean performance on math and reading, graduation rate, attrition rate — across all measures every single year," Miron says. "It's an absolute disaster."

In Idaho, virtual charter schools have dragged down the state's graduation rate. No virtual school had a graduation rate above 50 percent during the 2015-16 school year, according to the Idaho Public Charter School Commission. The largest, Idaho Virtual Academy, a K12 Inc. school, had a graduation rate of 33 percent. At IVA, math proficiency was also 33 percent, while English Language Arts proficiency was 50 percent and science proficiency was 65 percent.

In Washington, results haven't been much better since K12 Inc. arrived in 2004.

The company originally started Washington Virtual Academy as a K-8 school, under Steilacoom Historical School District. Within two years, enrollment had climbed beyond 1,000 students.

Samuel Scott, a member of the Steilacoom Historical School District school board for 14 years, says he is proud that Steilacoom helped break ground on virtual education in the state. He says K12 did a "good job of educating," and praised its model. Any revenue it brought to the district was offset by administrative costs, he says. But as WAVA sought to expand and enroll more high school and out-of-district students, Steilacoom decided it wasn't worth the extra administrative work.

"K12 Inc. is a for-profit. They have to make money. And so in order for them to actually thrive, they needed to expand, and we just didn't want to incur all that administration work," Scott says.

Student performance on state assessments for WAVA students from 2004 until 2013, the year WAVA left Steilacoom, was markedly worse than the rest of the district and state as a whole, according to data from OSPI.

As more and more families became interested in online education, K12 Inc. spread to other districts. Quillayute Valley School District started Insight, which is a high school program, in 2006. By 2010-11, almost 3,000 students were enrolled, nearly all from out of the district. The dropout rate was 44 percent. The four-year graduation rate? Less than 20 percent, according to OSPI. It improved slightly from there, reaching 31 percent for the 2015-16 school year.

Omak began contracting with WAVA in 2009. By comparison, its high school WAVA program had a graduation rate of 23 percent for the class of 2012, but by 2015 it jumped to 71 percent, according to OSPI. For comparison, the four-year graduation rate statewide for the class of 2015 was 78 percent.

There are plenty of caveats when measuring success of online schools. Online students often have been struggling with a traditional school when they choose an online program. The students are more mobile, meaning they don't stay in the program for as long. They're typically more at-risk. And when students who are at-risk of not graduating transfer from their home district to a virtual school, it only impacts the virtual school's graduation rate, says Insight Head of School Jeff Bush, who responded to Inlander questions via email through K12's corporate communications office.

"Grad rate is a complex issue," he writes. "It is important to look beyond the numbers and unpack the nuances."

Reaume, the Quillayute Valley superintendent, agrees that circumstances of individual students must be considered. Insight brings in students who can't attend a brick-and-mortar school. One of the enrolled students, Reaume says, is an actor in Los Angeles who flies back and forth to Washington from there. An online school is the only way that student can make school work. Other Insight students — about three-quarters of the population, Reaume says — are those who are already disengaged from public school, unlikely to graduate on-time anyway.

When asked about Insight's graduation rate, Rhett Nelson, OSPI online learning program manager, says OSPI is "definitely interested" in starting to measure the performance of online schools. But comparing the numbers with a traditional school, he notes, would not do the program justice.

"There are a lot of different factors in assessing performance," Nelson says.

Right now, OSPI is limited in the way it measures success for virtual schools, no matter if the provider is for-profit or not. Students who attend virtual schools part-time, for example, don't show up in state graduation-rate data.

Nelson says right now, OSPI is looking at better ways to measure performance in online programs.

"We did discover over the last year that we don't have the data, the data tools, needed to review the programs and assess the program's performance," Nelson says. "We're working on getting those in place."


For Leslie Gwiazda's daughter, Lala, a brick-and-mortar public school never really was an option. Gwiazda adopted Lala as an infant. She was a "drug baby," Gwiazda says. That came with a host of issues that made attending a public school a risk.

Lala, 7, has an autoimmune disorder. She's constantly seeing specialists for various issues — eye surgery, hearing aids, bladder or kidney problems. She has a strong vocabulary, but has difficulty writing with her hands. She loves swimming, riding her bike, coloring and playing with dolls, but her sensory-processing issues can get in the way of physical activities.

Gwiazda says she saw the advertisements for Washington Virtual Academy saying that students of all ages can learn from home, that they can learn at their own pace. Lala's older brother, now in college, had success in WAVA. So Gwiazda enrolled Lala as a kindergartener.

"But the program just is not designed for kids with special needs," says Gwiazda, who lives in Spokane.

Lala had what's called an IEP, or an Individualized Education Plan, which is for children with disabilities who need specialized instruction. In recent years, WAVA has been the subject of multiple complaints accusing the school of not following state and federal laws regarding special education students and students with IEPs.

Gwiazda says her daughter couldn't keep up with the work. She claims that when Lala didn't finish an assignment on time, WAVA would frequently tell Gwiazda to finish the assignment for her daughter. Gwiazda says she asked WAVA multiple times to modify her daughter's IEP, developed when Lala was in preschool, so that Lala could keep up with the work without Gwiazda doing it for her. But WAVA never modified the IEP, she says. She pulled her daughter out of WAVA months into first grade, and now Lala is repeating the first grade at a homeschool program run by Spokane Public Schools.

Gwiazda's main complaint is that she thinks WAVA should stop advertising itself as a school for kids with special needs.

"It needs to be advertised as a school for kids who don't have special needs," she says. "They weren't willing to modify Lala's IEP. They weren't willing to make her the best she could be."

Gwiazda's issues with WAVA echo other written complaints about the program obtained by the Inlander through public records requests:

In 2012, OSPI's Digital Learning Department received a parent complaint claiming WAVA required that a student revoke their IEP as a condition of enrollment. Karl Nelson, former director of OSPI's Digital Learning Department, asked WAVA to discontinue the practice. "Can you please reiterate — again — with your enrollment team that they should not require revocation of a student's IEP as a condition of enrollment?" Nelson wrote to WAVA Head of School Mark Christiano. "This seems institutionalized to me... despite our repeated warnings," said an email from another OSPI employee.

In September 2014, OSPI again received a complaint that WAVA had denied a student's transfer request based on the student's IEP status. OSPI notified WAVA that denying a student based on their disability is a violation of state and federal laws. Christiano, WAVA's head of school, said that WAVA would take steps to ensure it complied with state and federal civil rights laws. That included a policy that WAVA will not deny a student based on IEP status. The email also stated that WAVA would re-evaluate or write a new IEP if a student's IEP is overdue.

In October 2016, a parent alleged through an attorney that WAVA — and the Omak School District — violated the Individuals with Disabilities Education Act (IDEA) by failing to implement an 8-year-old's IEP. OSPI investigated and ordered that Omak hire an outside trainer to address special education and IEP procedures.

Scott Raub, the Special Education Parent Liaison for OSPI, says that a school district cannot deny enrollment to a student if that student initially met the school's criteria. And once the school does enroll a student with special needs, the district can't deny them special education services, by law.

WAVA's Christiano only agreed to respond to Inlander questions via email. He said he was not familiar with the 2012 complaint. Regarding the 2014 complaint, he said that WAVA never had a policy to deny a student based on disability, but says the review practice was changed. He called the 2016 complaint an "isolated incident." He notes that WAVA currently serves 500 students with IEPs.

"WAVA's percentage of special education students has increased over the last five years," he writes. "Our internal [special education] parent surveys show a very high level of satisfaction with the program and services provided."

Swanson, the Omak superintendent, admits that WAVA took a "limited approach" regarding what kind of special-needs students could be served. WAVA, he says, has made some staffing changes that will help.

"Starting this year," Swanson says, "all kids with IEPs are enrolled."

The National Education Policy Center's Miron notes that enrolling students with special needs means that K12 Inc. gets more money to service those students.

"They get a lot of money for special ed, but we don't know how they're spending it," he says.

Lindy MacMillan, a Northwest Justice Project attorney who represented the parent who filed the complaint in October 2016, is more concerned with WAVA potentially not providing the services to special-needs students once they are enrolled. While other schools have been knocked for similar issues related to student IEPs, she says that particular issue may be unique to WAVA.

"It's a huge barrier to kids with disabilities, because they won't learn the things they need to learn," MacMillan says. "To bring in a kid with an IEP, and not provide services — it's stagnated them, basically."


The majority of students who attend an online school full-time in Washington are in a school run by for-profits K12 or Connections Education. But school districts also have their own online schools without contracting with an outside company.

Spokane Public Schools has been running Spokane Virtual Learning for more than a decade. The curriculum is designed to match the curriculum of the district, says Spokane Virtual Learning Director Kristin Whiteaker. Other districts are increasingly partnering with SVL for online services. Instead of students leaving their home districts for SVL online courses, Whiteaker says that SVL tries to partner with those districts instead for online curricula.

Swanson says he sees SVL "trying to compete with WAVA." Whiteaker objects to that characterization.

"I wouldn't think we're competing with them. We're providing support for local school districts to be able to serve their own students," she says. "We're providing a means for public schools not to lose their students to a for-profit."

Evergreen Public Schools in Vancouver, for example, recently switched from using a curriculum from K12 Inc., to using a curriculum from SVL. Heather Fowler, principal of Vancouver's Legacy High School, which was called iQ Academy before the curriculum change, says they switched to SVL because it was local.

"We liked the fact that the curriculum was created by classroom teachers at the local level here in Washington, and that it is consistently updated based on the feedback of teachers who use it," Fowler says.

The curriculum for an online provider must meet "at least eighty percent of the current applicable grade/subject area Washington state standards," according to OSPI. However, it's not necessarily an exact science. Rhett Nelson, the OSPI online learning program manager, says there isn't really a precise way to measure that. There's an initial review of the curriculum; otherwise, he says, "we basically trust" that online providers and school districts are working within the standards.

A major difference between SVL and schools run by for-profits is that SVL discourages full-time enrollment in an online school. Only a few students attend SVL full-time; most attend part-time, in an effort to catch up or recover needed credits for graduation.

The challenge, Whiteaker says, is that being in front of a computer 30 to 35 hours a week for schoolwork is like having an office job.

"It's very difficult to take full-time online and be successful," she says.

While thousands of students attend online schools full-time through WAVA, Insight or Washington Connections Academy, the vast majority — nearly 90 percent — of the 30,000-plus students attending a Washington virtual school split their time between it and a traditional school.

Miron, the National Education Policy Center's researcher, argues that full-time virtual enrollment should happen sparingly. There's a place for full-time virtual students, he says, but it should be reserved for a very small portion of kids who use it while dealing with an illness, or who play sports, or are acting in a movie. He says that the increasing number of online students across the country is causing problems for states when it comes to oversight and measuring success.

"We don't have the personnel and routines and process in place to track all these kids," Miron says.

In Washington, there have only been minor reforms to online education in recent years. In 2011 and 2013, the Washington state legislature enacted new laws related to Alternative Learning Experiences, including online schools. Mainly, the changes had to do with creating more transparency in how ALE programs report for state funding.

The legislature ordered that the Washington State Auditor's Office conduct a three-part "performance audit" on Alternative Learning Experiences, including online schools in Washington. It's already behind schedule.

Spokane state Sen. Andy Billig, a member of the Senate's K-12 Education committee, says the legislature has been more focused on funding general education as mandated by the state Supreme Court's 2012 McCleary decision. He admits "it may be time for another look" at online programs.

Swanson, in Omak, still believes the WAVA program is delivering a quality education. Yet even he says that OSPI and the state legislature need to keep their eye on virtual education.

It's moving at a faster pace than people, including lawmakers, perhaps want to admit, he says, adding:

"It's gonna change the game completely." ♦

ABOUT THE AUTHOR: WILSON CRISCIONE, born and raised in Spokane, is an Inlander staff writer who covers education and county government. His work previously appeared in publications including the Spokesman-Review, and before joining the Inlander in 2016 he wrote about education and crime for the Bellingham Herald. Contact him at [email protected] or 509-3205-0634 ext. 282.

Wilson Criscione

Wilson Criscione is the Inlander’s news editor. Aside from writing and editing investigative news stories, he enjoys hiking, watching basketball and spending time with his wife and cat.

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