For-Profit Charter Schools: An evaluation of their spending and outcomes

Foreword

By Amber M. Northern and Michael J. Petrilli

After a tumultuous and mostly hostile reception, the Biden administration’s regulations for the federal Charter Schools Program (CSP)—which provides start-up and expansion grants—were finalized in July. Although the Administration backpedaled partway on issues related to community demand and racial integration, its final rules maintained its war against for-profit charters, in line with the president’s campaign promises.  

We understand perfectly well that the phrase “for-profit charter schools” can conjure up images of stout old men in suits greedily raking in cash on the backs of poor families and students. We also recognize that a few charter operators are closer to that depiction than choice supporters might care to admit. Yet that image is based on a misnomer married to a misconception.

That’s because all U.S. charter schools (save for a handful in Arizona) are not only governed and regulated by public agencies, but also must operate as nonprofit organizations run by their own boards. Those boards may—and many do—choose to enter into contracts with for-profit or non-profit management organizations that provide specific services for one or more schools. They do this in the interests of quality, efficiency, and economy, much as traditional public schools obtain various administrative and academic supports from their central offices, even as many districts obtain services ranging from busing to textbooks to clinical psychology to cafeteria food from for-profit vendors. Strictly speaking, then, almost nowhere in America is there such a thing as a “for-profit charter school.” What there are are some non-profit schools that contract with for-profit management organizations for a range of goods and services.

If that explanation strikes you as technocratic, you’re not alone. Most people fail to make a distinction between whether a school is providing a service directly via its own regular staff or is obtaining it via another entity. One result of that failure to read the fine print is that charter critics and enemies run into few challenges when they erroneously refer to “for-profit schools.”

Such animosity certainly oozes through the dense requirements that CSP applicants must henceforth meet if they choose to work with for-profit management organizations. For starters, they must ensure that goods and services purchased from such an organization are of fair market value, that the school’s governing board is making key programmatic decisions, that members of said board are not selected by the management organization, that the management contract is severable, and on and on.

We’re all for reasonable safeguards to guard against rotten apples in the charter barrel. But note the crucial missing link: The federal regs appear oblivious to whether the functions performed by a for-profit organization have anything to do with school quality. Heavy on inputs, the final regs ignore how for-profit management companies might serve to benefit (or harm) charter students academically. They also fail to make some vital distinctions within the variegated world of schools that work with outside providers.

This study sheds much light on these key points. Using recent data from Ohio, Professor Stéphane Lavertu and Assistant Professor Long Tran of The Ohio State University dig into what is meant by “for-profit” charter schools, how they spend resources differently from other charters, and how they compare in effectiveness to other charters (and to traditional public schools) in academic and nonacademic outcomes.

The full report is well worth your time, but for the time-challenged, here’s the gist of what they found.

First, as explained above, Ohio has no “for-profit charters.” But the 208 charter schools included in the study can be split into three categories: those that mostly manage their own operations (47 schools, or 23 percent), those that outsource goods/services to non-profit organizations (55 or 26 percent), and those that outsource goods/services to for-profit organizations (106 or 51 percent). The lattermost typically send more of their operating funds to their (for-profit) management organizations than do charter schools with non-profit management organizations.

Further, the roughly half of charter schools that outsource to a for-profit management organization (n=106) can be further subdivided into those that contract for personnel services and those that choose to hire their own staff. Three-fourths (n=78) of the charter schools that work with external for-profit organizations contract for staff. And because staffing is the largest item in any school budget, those schools send the bulk of their operating funds to those organizations. The remaining one-fourth (n=28) hire their own staff and, consequently, send smaller checks to for-profit management organizations. This staffing distinction is important, as teachers and other staff are the heart of any school—and a charter school board that directly employs its own retains more control over the content and quality of its curricula, its pedagogy, and its personnel than one that outsources staffing.

Drs. Lavertu and Tran also find that charters that contract with for-profit entities for staffing spend more in the classroom and less on administration than their counterparts that work with non-profit organizations. That’s good. But they also drive heightened rates of chronic absenteeism among the charter sector. Not so good.

Finally, the study examines school effectiveness and largely replicates what Dr. Lavertu found in an earlier analysis of Ohio charter schools: So-called for-profit and non-profit charter schools both outperform traditional public schools, but non-profits also outperform for-profit charters, particularly in mathematics.

We draw four implications from these results.

First, readers who are automatically inclined to hate so-called for-profit charter schools should rethink their priors.

These schools tend to focus on instruction versus administration, as they spend more on classroom activities and offer more instructional hours, particularly in the middle grades. What’s more, they outperform district schools, particularly in English language arts. Meaning that if these schools went away, their students would be worse off on average if they ended up back in their district schools.

Second, as with all schools, we shouldn’t view for-profit charter schools as a monolith.

There are 106 charters in Ohio (about half of the study sample) that contract with for-profit management organizations. Seventy-eight of them turn over nearly everything, including personnel, to those organizations, while the remaining twenty-eight directly employ all or nearly all of their personnel, choosing instead to contract for specific (and less expensive) services. Since personnel is the biggest budget item in a school, charters that externally contract for it purchase services that, on average, comprise 91 percent of their total expenditures. Those charters that directly employ their own staff purchase services from their for-profit management companies that comprise on average 39 percent of their total expenditures.

That's a big difference.

It’s not a huge leap to assume that a school’s relative level of control is correlated to the portion of its budget that it outsources. Schools that outsource over 90 percent of their budgets have essentially surrendered control of key decisions, not only the hiring of their most important asset (teachers!), but largely what they teach and how, as well as decisions about learning loss, parental engagement, school discipline, the master schedule, and so on. Schools that purchase less than 40 percent of services effectively retain “majority control” over the running of the school. They continue to shape some of the fundamental educational goals and practices of the school, as well as its likelihood of succeeding academically.

Third, for-profit charter schools in Ohio that outsource nearly all services perform worse than those that outsource fewer.

It’s true that students in Ohio for-profit charter schools are more likely to be chronically absent than students in non-profit charter schools or traditional public schools. However, this result is driven entirely by the for-profit charter schools that send nearly all of their operating funds to their for-profit management organizations, also known by detractors as “sweeps contracts.” Compared to charter schools that contract with non-profit management organizations, these contract-centric charter schools also have more students per teacher and more teacher turnover, which could manifest into weaker student-teacher relationships that depress attendance.

We can’t underscore enough the importance of differentiating among charter schools in the for-profit space. Case in point: Students enrolled in charters that hire their own staff—and are therefore less reliant on management organizations for instructional delivery—actually experience improvements in attendance rates and declines in rates of chronic absenteeism compared to their more contract-centric peers. Simply put, some so-called for-profits schools are better than others.

Fourth and finally, because of this variation, we should avoid regulating charter schools based on the tax status of their management organizations.

We understand that some people just don’t like the idea of “for-profit charters,” but the proof is in the pudding. Some of them are quite good—including those with management companies that run core academic functions—and they bring much needed capital to the sector. We need to focus on their academic progress with students, not the tax status of their primary vendor. On their results, not on our ideology.

That means that we should be for targeted regulations, not inputs-based laundry lists or poor attempts to quantify the involvement of management organizations. To wit, the final federal regs say in numerous places that the applicant must provide assurance that a management organization does not exert “full or substantive administrative control over the charter school.” They go on to say that the “use of the term ‘substantial’ is intended to put grantees and subgrantees on notice that in most cases, a management organization that exercises ‘substantial’ control over a charter school would be considered to be exercising an impermissible amount of control over the CSP project.”

Does this mean that charter schools that contract externally for staffing are on the outs, given that the bulk of their operational funding goes to their management organization for this purpose? Does outsourcing back-office support to organizations set up to handle it—as many administratively-lean community-based charters do—equate to “substantive administrative control”?

We’d argue that these are the wrong types of criteria by which to disqualify participation in a federal program, much less to gauge a successful school. Instead of fretting about the cost of the contract, how much it comprises of the school’s overall funding, and the duration of involvement (among numerous other things), how about taking into consideration the management organization’s track record of success with the service(s) that they are providing? No matter what they are contracted to help the school with, will it be completed successfully and efficiently? Outcomes, not the myriad details dancing around them, is what we should most care about.

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Applicants to the federal Charter Schools Program were barely given a month to complete their applications after the final regulations were issued. It’s hard to grasp how any school leaders could finish such a daunting task in so little time. But, like it or not, charter schools are used to having to prove themselves. Grants are to be announced within days. We’ll be looking to see which state entities, developers, and charter management organizations make the cut—and whether any high-quality for-profit schools are in the mix. Stay tuned!

Introduction

Biden administration officials at the U.S. Department of Education proposed in March 2022 to make it more difficult for charter schools to open or expand, as well as to deny federal funding to so-called “for-profit charter schools.”[1] In July, the administration’s final rules and regulations relative to the Charter Schools Program (CSP) grants largely followed through on these intentions, making it hard for for-profit charter schools to access federal start-up funds. House Democrats are also working to incorporate the rules into appropriations bill language, meaning that both the executive branch and Congress are targeting these schools. And multiple states have already banned (e.g., California) or considered banning (e.g., Ohio) for-profit entities from the charter sector.

But what do we mean exactly by a “for-profit” school? After all, every U.S. charter school (save for a few in Arizona[2]) is a nonprofit entity, in that the school—which holds the charter approved by the authorizer—must be a nonprofit organization recognized by the Internal Revenue Service. That means that the school must put any profit (i.e., net income) it generates back into the organization to further its public mission, as opposed to enriching owners as in for-profit businesses. Moreover, the authorizing organizations that sponsor and oversee schools—the organizations that grant schools those charters—must be public agencies or nonprofit entities. So, by law, definition, and practice, charter schools are not “for-profits.”

Typically, when critics use the term “for-profit charter school,” they mean that a nonprofit charter school has contracted out its operations or services to a for-profit organization—not that the school itself is for-profit. What complicates matters is that it is common for all public schools—both traditional and charter—to contract with for-profit vendors for a variety of services, from transportation and building maintenance to food service and student tutoring. Vendors also supply basics such as desks, textbooks, and paper.

Should the definition of a for-profit charter school include any school that contracts for goods or services from a for-profit entity? Should distinctions be made between the types of services—managerial, instructional, or other operations—or based on the extent of goods and services provided? For instance, if the latest rules are read as cutting off federal start-up dollars to “for-profit” schools, will they inadvertently eliminate funding to some nonprofit, community-based schools, too, just because they outsource “too many” services to for-profit organizations?

The latest regulations seek to make some of these distinctions. For instance, they

“. . . require applicants to provide assurances that they will not relinquish full or substantial administrative control of their CSP grants or subgrants to a for-profit management organization and that any management contract with a for-profit management organization will contain specific provisions to mitigate the risks associated with such contracts.”

What comprises “full or substantial administrative control” may be open to interpretation, but other new requirements are not. For example, applicants are required “to conduct a needs analysis and to submit detailed information on their management contracts with for-profit entities, including nonprofit charter management organizations (CMOs) operated by or on behalf of for-profit entities.” They must also “provide assurance that they will post on their websites information regarding any management contract between the charter school and a for-profit management organization.”

What these new regulations ignore is how the particular functions that a for-profit organization performs correspond to school quality. Would restrictions on purchasing services from for-profit vendors limit or enhance high-quality public school options? Those opposed to charter schools contracting with for-profit organizations claim that, because state per-pupil funding formulas put a ceiling on revenues per pupil, a profit motive could lead for-profit charter school operators to minimize spending and, consequently, lower educational quality.

On the other hand, charter schools—which in many major cities receive, on average, 33 percent less funding per student than traditional schools—can increase per-pupil revenue by enrolling more students and realizing economies of scale, which still requires meeting the expectations of parents, authorizers, and state officials to remain open.

To date, we know very little about whether a charter school’s use of for-profit organizations affects its quality. To better understand these differences among charter schools and how these differences affect students, this report uses administrative data from Ohio to answer the following research questions:

1. What makes a charter school “for-profit” vs. “nonprofit”?

2. How do for-profit and nonprofit charter schools spend resources differently?

3. How does the effectiveness of “for-profit” charters compare to the effectiveness of traditional public schools and “nonprofit” charters in terms of standardized test scores, end-of-course exam scores, and attendance and disciplinary outcomes?

We are not able to determine how much “profit” is made by a for-profit organization hired to render services for a charter school. We have access to school-level expenditure data that schools and districts report annually, as well as charter schools’ financial forecasts. But we do not have access to the budgets or earnings reports of the for-profit organizations that are contracted to help schools. Still, the present study is by far the most systematic analysis of for-profit vs. nonprofit-operated schools that has been conducted to date.

Ohio context

Ohio is an ideal state to explore these questions. Not only is it one of only a handful of states with a sufficiently large number of charter schools that use for-profit organizations,[3] but it is also the only state in the country that makes charter school contracts with vendors publicly available, including fine-grained financial data[4] (though, as indicated above, the CSP regulations may change that). It is also atypical in the wide variety of charter school authorizers it permits, including local school districts, other public agencies, and nonprofit entities (including the Thomas B. Fordham Foundation).

Ohio is typical, however, in that its brick-and-mortar charter schools on average provide considerable educational benefits to disadvantaged student populations. It seems reasonable to assume that the results documenting the advantages and disadvantages of for-profit charter schools (relative to both nonprofit charters and traditional public schools) could apply in other contexts.

Figure 1 provides an overview of Ohio charter school governance and operations. As indicated, all Ohio charter schools are deemed both public schools—governed and regulated by public agencies—and nonprofit organizations run by their own boards. Charter schools’ governing boards may also choose to enter into a contract with for-profit or nonprofit management organizations (“operators”) that provide specific services for one or more schools (a.k.a. a charter school “network”)—much like the administrative supports and academic leadership provided to traditional schools via district central offices (see the last boxes in Figure 1). Technically, then, there is no such thing as a “for-profit charter school” in Ohio or in virtually any other state[5]—just for-profit management organizations.

Still, for the sake of consistent nomenclature, we adopt the same (albeit confusing) shorthand. We identify charter schools as “for-profit” if they contract with a management organization that the State of Ohio has identified as a for-profit corporation. “Nonprofit” charter schools, on the other hand, are those that contract with nonprofit organizations for management services or those independent community-based schools that manage their own operations.

Figure 1. State government and nonprofit organizations can oversee charter schools in Ohio, but for-profit organizations may help in running day-to-day school operations.

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Background

Data and Methods

The analysis compares the administrative practices (e.g., staffing and budgeting) and educational effectiveness (e.g., gains in achievement and attendance rates) of various types of charter schools in operation during the 2018–19 school year (hereafter 2019)[11]—the last prepandemic year for which student-level outcome data are available. We analyze schools serving elementary and secondary grades separately because their administration often differs in key ways.[12] We focus on differences in average outcomes between sectors: nonprofit charter, for-profit charter, and traditional public schools.[13]

Table 1. Ohio charter school counts by type (2019)

We also obtained from the Ohio Department of Education student-level data that provide school of attendance for each grade and year, demographic and academic characteristics (race, economic disadvantage, gender, disability status, and English-learner status), scale scores on mathematics and English language arts (ELA) exams in grades 3–8, scale scores on high school exams (Algebra, Geometry, ELA I, ELA II, and ACT/SAT), counts of reported disciplinary incidents for which the schools expelled or suspended a student, the number of instructional hours for which a student was present, and whether a student received a high school diploma. We normalize state test data for grades 3–8 such that student scores capture their distance in standard deviation units from the statewide mean in a given subject, grade, and year. We normalize high school tests by subject and year only, as students may take these tests in different grades.[17]

Statistical approach

We compare the administrative inputs and educational impacts of schools operating in the same geographic school district. Comparing nearby schools helps to take into account regional differences relative to how much it costs to educate children and variation in students’ demographic characteristics.[18] As described in Appendix A, we use models that account for such fixed differences between districts.

Comparing students who attend school in the same geographic district goes a long way toward making sure that we are comparing the educational outcomes of students who are identical except for the type of school they attend. Still, to address the issue that students who select into one school type may nonetheless differ from those who select into another school type, we follow the well-established practice of comparing student-level changes in educational outcomes between students who are nearly identical in observable characteristics but who attended different types of schools. As explained in Appendix A, we include statistical controls for students’ baseline test scores, attendance rates, rates of disciplinary reports, and various other observable characteristics (e.g., economic disadvantage).[19]

Finally, to provide the most credible assessment possible of Ohio charter schools, we focus primarily on brick-and-mortar (“site-based”) charter schools serving “general” student populations according to the Ohio Department of Education.[20]

Differences in how for-profit and nonprofit charter schools allocate resources

Summary of Results

This section examines how charter schools contract for services and spend revenues. We find that for-profit charter schools send more of their operating funds to their management organizations than do their nonprofit counterparts. Moreover, contractual data show that there are actually two types of for-profit charter schools, distinguished by whether they contract for personnel services or, instead, hire their own staff. For-profit charter schools also spend more in the classroom and less on administration than their nonprofit counterparts.

Finding 1: For-profit charter schools typically send more of their operating funds to their management organizations than do nonprofit charter schools with management organizations.

Figure 2 shows the percentage of services purchased via contract by charter school type. The average for-profit charter school spends 77 percent of its operating funds on purchased services, whereas the average charter school with a nonprofit organization managing its operations spends 55 percent of its funds on purchased services. The average community-based nonprofit charter school—which, by our definition, manages its own operations—spends 27 percent of its operating funds on purchased services, with none of these schools spending more than 50 percent.

Figure 2. For-profit charter schools spend more of their operating funds on purchased services than other charter schools.

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Finding 2: Contractual data reveal two types of for-profit charter schools—those that contract for personnel services and those that hire their own staff.

A school’s key expense is instructional personnel (i.e., teacher salaries), and the data show a notable distinction in how for-profit charter schools handle these costs.[21] Figure 3 shows that two-thirds of for-profit charter schools purchase personnel services from their for-profit management organization (those schools are represented by the striped rose bars in panel C). Consequently, these schools send nearly all of their operating funds to their management organizations. The remaining one-third of for-profit charter schools hire their own staff and, consequently, send much less to their for-profit management organization.[22] This stands in contrast to nonprofit charter schools. Sixty-six for-profit charters send more than 80 percent of services from contractors, but only sixteen nonprofit schools (per striped blue bars in panel B) do likewise.

The striking distinction between schools that hire their own staff and those that contract for staff likely has some real-world consequences. Once a school relinquishes control of their most important asset—teachers—they are effectively handing over to their nonprofit or for-profit management organization the power to shape some of the fundamental educational goals and practices of their school, as well as the likelihood of succeeding academically. Schools in which teacher contracts are held by the management organization are also operating as part of a network, suggesting more standardization of teacher practices. On the other hand, a charter school that continues to hire its own staff retains more control over its educational programming even if it has outsourced multiple other services to a management organization.

Figure 3. Since personnel expenses are the bulk of a school’s budget, charters that contract for personnel have the highest levels of purchased services.

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Table 2 describes the extent to which for-profit organizations are involved in educational delivery for different types of charter schools. Recall that a school may be for-profit or not based on the for-profit status of its management organization. For-profit schools are separated into those that have their own instructional staff (“for-profit – own staff”) and those that contract with their management organization for personnel services (“for-profit – contract staff”). As shown, the latter send nearly all of their budget (91 percent on average) to their management organizations, whereas the former send only 39 percent on average. Thus, the extent of involvement of for-profit firms (low, moderate, or high) is based on whether they do not contract with a for-profit management organization (low), contract with a for-profit management organization but hire their own teachers (moderate), or contract with a for-profit company for virtually everything (high).

Table 2. Charter schools vary significantly in terms of how involved their for-profit management organizations are in the delivery of educational and other services

Finding 3: For-profit charter schools that contract with management organizations for staffing spend more in the classroom and less on administration than their nonprofit counterparts.

Table 3 shows that for-profit charter schools overall spend the same amount per pupil as nonprofit schools.[23] However, for-profit charter schools spend $581 more per pupil on classroom personnel and activities and, correspondingly, $699 less on administration. On the other hand, they have more first-year teachers (43 versus 35 percent, on average), three more students per teacher (19 versus 16, on average), and five more schools in their networks (17 versus 12, on average) than nonprofit charter schools. These latter three differences, however, are driven by the schools that send nearly all their funds to their for-profit management organizations to handle staffing and other tasks. Additionally, students in these particular charter schools experience forty-six more instructional hours annually, on average, than students in nonprofit charter schools.

Moreover, for-profit charters in general spend nearly every penny—keeping an average of just 5 percent of their operating expenditures as cash on hand to help them cope with revenue volatility (see Table A2 in Appendix A). These results paint a picture consistent with the notion that for-profit organizations seek to maximize economies of scale.[24]

Table 3. For-profit charter schools spend more in the classroom and less on administration than nonprofit charter schools that contract with nonprofit management organizations, but there are significant differences between for-profit charters that do and do not purchase personnel services from their management organization.

Comparing the results of for-profit and nonprofit charter schools

Summary of Results

In this section, we compare for-profit and nonprofit charter schools in the same district while controlling for school composition (i.e., the average baseline test scores and demographic characteristics of their students).[25] We find that nonprofit charter schools exhibit slightly higher achievement gains than their for-profit counterparts and that chronic absenteeism is especially high in the latter—particularly those that contract with their management organizations for staffing. [26]

Finding 4: Nonprofit charter schools exhibit slightly higher achievement gains than for-profit charter schools.

Figure 4 compares the impact on academic achievement of for-profit and nonprofit charter schools operating in the same geographic district, holding constant their student makeup. Figure 4 shows that annual achievement growth is slightly (0.02 standard deviations) lower among students in for-profit charter schools compared to similar students in nearby nonprofit charter schools with similar student bodies.[27] This lower growth (which is still greater than that of nearby traditional public schools) is driven by lower math achievement, particularly in for-profit schools that hire their own staff. Overall, there is no statistically significant difference in the average achievement impact of the for-profit schools that use external hiring and the nonprofit charter schools operating in the same district (though this average masks less progress in math in for-profit charters).

Figure 4. Students in for-profit charter schools experience somewhat lower achievement growth relative to same-district nonprofit charter schools.

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Finding 5: The heightened rates of chronic absenteeism among for-profit charter schools are driven by those that send nearly all their funds to their management organizations for staffing costs.

Results in Figure 5 show that for-profit charter schools that contract with their management organization for staff are driving the negative attendance results in the for-profit sector. Students attending these schools experience worse attendance rates and are more likely to be chronically absent than similar students attending nonprofit charter schools[28] (students at these schools are also somewhat less likely to be reported for disciplinary action). In other words, the adverse effects on student attendance rates overall in the for-profit sector are driven entirely by the for-profit charter schools that contract externally for staffing services. In fact, students in for-profit charters that hire their own staff—and are therefore less reliant on their management organizations for instructional delivery—experience improvements in attendance rates and declines in rates of chronic absenteeism.

Figure 5. The for-profit charter schools that send most of their funds to their management organizations for staffing drive the inferior attendance outcomes.

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How do for-profit charters compare to traditional public schools?

A 2020 Fordham Institute report (authored by one of this report’s authors) compared the performance of Ohio charter schools to the state’s traditional public schools.[29] That report found that both nonprofit and for-profit charter schools outperformed nearby traditional public schools (see Appendix A for additional evidence that replicated this finding). Moreover, within the charter sector, nonprofits outperformed for-profits.

Analyzing charter high schools, the results here follow those of the previous report, finding generally strong performance, although those for for-profit charter high schools are more mixed. Students in nonprofit charter high schools (particularly those attending schools with nonprofit management organizations) have greater achievement growth than traditional public-school students (Figure S1). Specifically, in grades 9–11, students in nonprofit charter schools experience achievement gains that are 0.06–0.08 standard deviations greater (as measured by the ACT, which includes both math and ELA content) than similar students attending traditional public schools (across the board, though, the charter school advantage is more pronounced in ELA). Students attending for-profit charter high schools, however, experience lower achievement growth in mathematics (0.08 standard deviations lower) than similar students in nearby traditional public schools.[30]

Figure S1. High school students in nonprofit charter schools experience greater achievement than similar students attending traditional public schools.

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In contrast to the strong performance of charters on academic assessments, Figure S2 shows that nonprofit charter schools offer no statistically significant advantages in terms of the probability of ever receiving an Ohio diploma and that students attending for-profit charter high schools are six percentage points less likely to do so (a 7 percent decline from the average graduation rate of 87.5 percent in our sample). However, the figure reveals that students who attend nonprofit charter schools are significantly more likely to persist to grade 11 and just as likely (if not more) to sit for the ACT than students in traditional public schools. These results are consistent with the positive attendance estimates in other grades (see Appendix A) and confirm that the positive charter school effects on the ACT exam are not due to charter schools getting rid of low-achieving students low-achieving students.

Figure S2. Students in for-profit charter high schools are less likely to receive an Ohio diploma compared to students in nonprofit charters or traditional public schools, but comparable students in all schools are just as likely to take the ACT or SAT in eleventh grade.

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Also worth mentioning: the strong performance of charter schools in Ohio may be a result of those schools providing more instructional hours (Figure S3).

Figure S3. Charter schools’ superior achievement growth in grades 4–8 corresponds to a significantly greater number of instructional hours.

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Implications

The analysis suggests three takeaways.

First, banning, restricting, or limiting funding for charter schools that contract with for-profit management organizations could adversely impact the disadvantaged students that such schools primarily serve. There are clear educational benefits of for-profit charter schools. Their average impact on student achievement is substantively and statistically greater than that of traditional public schools in the same geographic school district. These results hold even if we limit the analysis to for-profit charter schools that send nearly all their operating funds to their for-profit management organization. But we also don’t know what other schools students would attend—or how effective they would be—if federal funding were denied to charter schools that use for-profit management organizations.[31]

Although not definitive, our analysis suggests some distinct advantages for charter schools managed by for-profit organizations. These schools tend to focus more on instruction versus administration, as they spend more on classroom activities and students experience more instructional hours. This pattern corresponds to economies of scale, as for-profit schools spend less on personnel, have higher student-teacher ratios, and have larger networks of schools than nonprofit schools, on average. The for-profit delivery-model—which appears to be less staff dependent—is more effective than the traditional public school system at educating low-achieving students when it comes to ELA and math content on standardized exams but perhaps less effective at promoting attendance and educational attainment.

Second, virtual charters and charter schools that contract out almost all of their services to a for-profit organization may deserve extra scrutiny. This analysis reveals that students in for-profit charter schools are more likely to be chronically absent than students in nonprofit charter schools or traditional public schools. This result is driven entirely by for-profit charter schools that send nearly all of their operating funds to their for-profit management organizations, which also have larger operator networks, more students per teacher, and more teacher turnover than nonprofit charter schools that contract with nonprofit operators.

In Appendix B, we also document the significant academic struggles of students in virtual schools—a finding that has been well documented in the literature. All virtual schools are, by definition, charter schools in Ohio, and they are also far more likely to be managed by for-profit organizations.

Third, states should continue to expand high-quality charter schools, given their strong track record. Ohio’s charter schools, on average, cost less and outperform nearby traditional public schools with respect to student achievement, attendance, and disciplinary incidents. Although there’s a perception that Ohio charter schools perform poorly compared to charter schools in other states,[32] evidence is mounting that Ohio’s charters are good choices for many families.[33] As this study and our previous study on the topic have shown, students attending brick-and-mortar charter schools experience substantial improvements in math and reading achievement, increases in attendance rates, and declines in rates of chronic absenteeism and reported disciplinary incidents. Results show that the positive average impact of charter school attendance (relative to traditional public schools in the same geographic district) is not due to a few high-performing charter schools but the fact that charters are generally delivering above average results.

Endnotes