An investigation of Colorado’s full-time virtual schools has revealed some dubious results and practices, which led the state’s Senate President to call for an emergency audit of all of Colorado’s virtual schools.

But the state shouldn’t be shocked by the report. As the truism goes, you get what you pay for.

Colorado’s policy environment incentivizes exactly what it’s getting from its full-time virtual schools—and arguably not just its virtual schools, but all of its schools statewide.

The biggest problem is this: It pays a school all of its funds on a “count day” on October 1 based on the number of students enrolled on that day. If students leave afterward, the original school keeps the funds. If students enroll elsewhere, the new school receives no funds.

This incentivizes providers to enroll students, but there are few incentives in place to focus on what happens after that. As a result, a significant number of online providers seem to have followed these incentives and done exactly what Colorado paid them to do. The end result isn’t pretty for students, as a great number of them allegedly leave soon after the count day and enroll back in district schools if they enroll elsewhere at all.

Some are using this to bash all online learning, as well as for-profit providers that are seizing this revenue-making opportunity (as many such providers did in higher education), but in so doing, these critics are missing the point.

As I’ve written numerous times, studying whether online learning is more or less effective than traditional learning is invariably asking the wrong question. Online and blended learning have the potential to dramatically transform our education system by being able to individualize for each student’s distinct learning needs (just look at the results from Carpe Diem, KIPP Empower, or Rocketship Education), but whether it does so will have a lot to do with policy—whether we change the incentives and focus not on merely serving students and micro-managing the inputs, but instead focusing on the student outcomes and leaving behind an antiquated factory-model system for a student-centric one. Ultimately we want a system that can deliver the right learning experience for each individual student when he or she needs it—whether that be an online or offline activity.

And just because many studies show that on average online and blended learning work better than does face-to-face learning, this does not mean that just because a program is online that it will be good. There will be both good and bad online programs, just as there will be good and bad face-to-face ones. Good programs, however, that do customize for these different learning needs and lead to increased student engagement and time on task, should be easier to scale in a digital world as opposed to an analog one.

Similarly, an oft-leveled charge at for-profits in education is that they only care about their shareholders, not about their customers. This is absurd. The way companies create shareholder value is by serving their customers. The problem here is that what the customer—the state of Colorado—is incentivizing is blatantly misaligned with what its students need.

As I wrote in a paper for the American Enterprise Institute titled “Beyond Good and Evil: Understanding the Role of For-Profits in Education Through the Theories of Disruptive Innovation,” for-profit companies are not inherently good or evil. Rather, successful companies do what their customers offer incentives to do—not much more or less. To say that for-profits are evil or poor quality misses the point because quality is defined by what a customer will pay someone to do. Blaming for-profits for doing what we have asked and paid them to do from the outset makes little sense.

What’s interesting in this particular case, however, is that a successful for-profit, K12, Inc., does apparently defy its incentives to some extent. According to Jeff Kwitowski, K12’s VP of Public Affairs, “K12 invoices the school for student-related expenses based on the number of students who are enrolled each month, not based on the October 1st enrollment count” despite the policy in place.

That’s good and smart of K12 to observe the spirit of the law, not just the letter. But policymakers must do better and create a system that does not rely on heroes and anomalies.

Given that, as I also wrote in the AEI piece, for-profits scale faster on average than do non-profits, they tend to be aggressive in seizing these policy opportunities, so policymakers need to fix bad policies quickly before an industry coalesces around a faulty value proposition and stands in the way of changing those policies with lots of money to back it up (as has happened with the players—mostly non-profit and government-run—that make up the country’s current factory-model education system).

There is a second problem with Colorado’s policy environment as well, which creates problems for truly judging how online learning programs are performing and could create incentives to avoid serving the hardest-to-serve and most vulnerable students. This one lies in the way our education system—across the nation—calculates graduation rates.

Although I’m still working out my thoughts on this, here’s the dilemma. The common graduation rate formula that has just recently been adopted across the country calculates a state’s graduation rate based, in essence, on the percentage of an entering freshman class that finishes high school with a regular diploma four years later. This may make sense as a way to judge a state (although there may be legitimate questions if it makes sense when moving to a competency-based learning system and away from one based on time), but it creates some problems for judging schools to where students are transferring in the midst of their high school experience.

The reason is this: Picture a school—like many of the online schools in Colorado—that enrolls a student in the fall who is classified as, say, a junior, based on his age. The graduation rate calculation says he should graduate in two springs from now; if he doesn’t, the school’s graduation rate falls. But say that student is many credits behind—let’s pretend for simplicity’s sake a year behind—and not on track to graduate “on time.” If the school manages to accelerate the student and the student graduates only a few months late—the summer after and not an entire year behind—shouldn’t that school get credit for accelerating the student? With today’s measurement systems, it is penalized.

The reverse scenario also exists today, as we give credit to schools that may have merely enrolled advanced students.

This doesn’t make sense. When a student transfers schools, he ought to be recognized based on the credits he brings and where he truly is academically, not based on his age—and the success of the school calculated accordingly.

This points to a desperate need to move toward a competency-based learning system that measures and rewards individual student growth, as well as an underlying shared learning infrastructure that allows the country to identify each unique student in a consistent way—so that when he or she moves geographies, the student’s record does as well—and to keep track of what that student knows and can do in a consistent way across geographies. Even moving past the question of calculating accurate graduation rates, unless this occurs, it remains challenging to figure out whether a school is helping a child academically with just a snapshot view.

Until we fix these problems, we shouldn’t be surprised at stories like the one unfolding in Colorado.

The biggest shame in all of this? By focusing on the wrong part of the story, it may set back our opportunity to leverage the rise of digital learning to transform our system into the student-centric one that each student deserves.


  • Michael B. Horn
    Michael B. Horn

    Michael B. Horn is Co-Founder, Distinguished Fellow, and Chairman at the Christensen Institute.