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Coronavirus shutdowns across the country have thrown school districts and higher education institutions into disarray. They’re bracing for budget cuts and other financial troubles. But for some online education companies, the upheaval represents a chance to profit.
Last month, Hechinger reported that website traffic was surging for some ed tech companies. Connections Academy, the virtual school run by Pearson, saw “strong increases in application volumes” in March. And K12 Inc., which provides online curriculum to homeschooling families and school districts, told investors in April that applications and inquiries were up. The company manages more than 70 schools in 30 states and Washington, D.C.
“Let’s talk about the upside to the pandemic in our business,” CEO Nathaniel Davis said on the company’s earnings call in April. He added that coronavirus was “unfortunate for so many people all around the world,” but continued, “when the pandemic first started to impact brick-and-mortar schools, our phones began to ring off the hook and we saw a sharp increase in traffic on our website.”
The company also plans to spend more advertising dollars to reach prospective students and parents through websites such as Facebook and YouTube. “We’ll have more digital and viral messages than we’ve ever had before,” Davis said. Between 2017 and 2019, K12 spent on average $37.4 million annually on advertising, according to SEC filings.
K12 Inc. has faced frequent criticism about poor student performance and been subject to legal scrutiny. In 2016, the company reached a $168.5 million settlement with the California attorney general over allegations that it used ads that misled parents about student success and parent satisfaction, and that it inflated attendance numbers to get more money from the state. The company paid the state $8.5 million and expunged $160 million owed by the schools it managed. K12 has denied all wrongdoing and says it had never attempted to make schools pay this money.*
Problems such as low graduation rates, dismal student achievement and high student turnover at many K12 schools are the result of a business model that prioritizes keeping down the costs of educating students, said Neil Campbell, director of innovation for K-12 Education Policy at the Center for American Progress, a left-leaning policy institute.
“They can have their marketing materials talk about all this personalized attention and all this increased flexibility, but what they don’t talk about is they massively understaff all these schools … and unload all of that on to parents,” Campbell said.
Davis defended the company’s teacher prep, which he said ensures that students receive the necessary support. “K12 has two decades of honing the skills and training teachers need to be effective in the online classroom,” he said in a written response to questions.
Most of K12’s students enroll already behind grade level, he added, yet the company has seen significant increases in the number of K12-managed schools graduating at least two-thirds of students on time.
Even though K12 sees opportunity within the coronavirus school closures, Jeffrey Silber, managing director at BMO Capital Markets, doesn’t expect a massive increase in the number of K-12 students taking virtual courses. A slight increase maybe, but “you’re never going to get a lot of kids going to school online because you still need a teacher,” Silber said. “You still need a parent to help.”
K12 Inc. has a rosier outlook. On the earnings call, Davis emphasized that the pandemic could increase acceptance of online education. “This moment will permanently change how the general public, school districts and regulators think about our business,” Davis said. “The short-term positive impact of the pandemic may be modest … The long-term effect we see providing a great tailwind to our business model.”
*Clarification: This article has been updated to clarify the terms of the settlement.
Meredith Kolodner contributed reporting. This story about K12 Inc. was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for Hechinger’s newsletter.
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