Running a charter school for profit should be illegal

From insider deals to real estate flips, the problems with charter schools run by for-profit corporations can’t be ignored. And growth in this sector is accelerating as operators use lax regulations and complicated corporate schemes to harvest public dollars from publicly funded charter schools.

Those are the findings of a new report, Chartered for Profit II: Pandemic Profiteering, from the Network for Public Education, the organization I lead. We determined that for-profit corporations operate nearly 17% of all charter schools. And because many are online schools with high enrollments, one in five charter school students attended a for-profit run charter during the 20212022 school year.

In some states, the percentage of students in for-profit-run schools is staggering. More than 50% of all Florida charter school students are in schools run by for-profit companies; in Ohio, the percentage tops 60%. In Michigan, a startling 72% of all of the state’s charter school students attend a school run by one of 45 corporations.

And this is not in the best interest of children. Students of charters run for profit graduate at lower rates and have more adverse academic outcomes as the number of charter services managed by for-profit operators increases. That conclusion, by the way, comes from a report published by the pro-charter Thomas B. Fordham Institute, an Ohio charter school sponsor.

Some of these schools are part of large national chains. Four of the five largest for-profit chains now run their schools with sweeps contracts, meaning that

90% or more of the public dollars coming into the school are “swept” into for-profit-controlled bank accounts. The largest, Miami-based Academica, runs a private online international school that gives out American high school diplomas and manages 205 charter schools in nine states. Thirteen for-profit chains run 20 or more schools or campuses. Nearly half of all 110 for-profit operators in the United States run only one or two schools. These micro-education management organizations exist solely to shield financial transactions and owner profits from the public.

The charter industry downplays the prevalence of charter schools being run for profit because the mission of for-profit companies is to maximize profits, which puts the focus on financial gain, not students.

Lax regulations allow for-profit owners to use creative strategies to extract more classroom funds. Too often, the incentives to generate profit become so great that owners stray into illegal activities such as enrolling “ghost students” to increase state funding. This is exceptionally easy to do in virtual charters that operate exclusively and predominantly online. Instances of manipulations and fraud have cost taxpayers hundreds of millions of dollars, but more profit can be made with other exploits.

While traditional public schools are subject to rigid regulations in using public funds, charters are often exempted from those requirements. In a single year in Arizona, 91.8% of the state’s charter schools were granted an exemption to state procurement rules. This allows owners to use other corporate entities to award lucrative, no-bid contracts for charter school services. One Arizona charter school chain siphoned nearly $33 million from its nine schools.

But the real cash is made in real estate. Using webs of related corporations, for-profit charters take ownership of school buildings, sometimes charging their own schools excessive leasing rates, which the public pays for. And then, when the building is paid off, the property is flipped, forcing taxpayers to pay off on real estate that the public does not own in most states.

For-profit chartering is now the predominant model in three states — Michigan, Florida and Ohio. But it is catching up in other states, including Arizona, Nevada and North Carolina. And tiny West Virginia has most of its new charters run by for-profit corporations.

The vast wealth created by the industry allows charter schools to influence policymakers and keep regulations lax. But state lawmakers are starting to wise up to the game, and there is growing public fatigue for their ongoing financial misdeeds. That is why recent Biden administration regulations put the brakes on giving for-profit run schools Charter School Programs funding.

Our report, which you can read at networkforpubliceducation.org, outlines six other simple policy changes that could be made to close many of these legal loopholes and ensure public funds end up serving students, not profiteers.

By Carol Burris