Investors gathered in an upscale private club in New York City last week to hear about investment opportunities in U.S. education. Parthenon Group consultant Rob Lytle pointed to new national academic standards for public schools, which, if as rigorous as advertised, may send districts looking for solutions–quick fixes that can be provided by private, for-profit vendors selling lesson plans, educational software, and student assessments.
“You start to see entire ecosystems of investment opportunity lining up,” said Lytle. “It could get really, really big.”
The K-12 market is huge: The U.S. spends more than $500 billion a year to educate children from ages five through 18. The entire education sector, including college and mid-career training, represents nearly 9% of U.S. gross domestic product.
The push to privatize has alarmed some parents and teachers, as well as union leaders, many of whom have rallied behind education historian Diane Ravitch. Schools have, says Ravitch, been set up by a bipartisan education reform movement that places emphasis on standardized test scores, labels poor performers as “failing” schools, and pushes local districts to transform low-ranked schools by firing staff and turning the building over to private management.
“They’re taking education, which ought to be in a different sphere where we’re constantly concerned about raising quality, and they’re applying a business metric: How do we cut costs?” Ravitch said.
Investors retort that public school districts are compelled to use that metric anyway because of reduced funding from states and the soaring cost of teacher pensions and health benefits. Public schools struggling to balance budgets have fired teachers, slashed course offerings, and imposed a long list of fees.
The time is ripe, the investors say, for schools to try something new, such as turning to the private sector for help. For example, education entrepreneur John Katzman urged investors to look for companies developing software that can replace teachers for segments of the school day, driving down labor costs.
Another niche spotlighted at the private equity conference: special education. Mark Claypool, president of Educational Services of America, told the crowd that his company has enjoyed three straight years of 15-20% growth as more districts have hired his firm to run their special-needs programs.
Critics see the rush to private vendors as worrisome because school districts are outsourcing not just supplies but also the core of education: the daily interaction between student and teacher. At the more than 5,500 charter schools nationwide, private management companies–some of them for-profit–are in full control of running public schools with public dollars.
“I look around the world and I don’t see any country doing this but us,” Ravitch said. “Why is that?”