Is the charter school bubble about to burst?

Burst your bubbleA new study by four education researchers says the movement toward private charter schools could be headed toward a disastrous outcome, much like the subprime mortgage crisis of several years ago.

“Private investors are lobbying states to change their rules to encourage charter school growth,” says one of the authors, Preston C. Green III. “The result is what we describe as a policy ‘bubble,’ where the combination of multiple authorizers and a lack of oversight can end up creating an abundance of poor-performing schools in particular communities.”

Basically, it works like this, according to the study, as reported in the Business Insider:

With the mortgage crisis, loan origination changed from an originate-to-hold model to an originate-to-distribute model. The OTD model allowed banks to sell mortgages into the secondary market, where they were bundled up and sold by the government-sponsored enterprises Fannie Mae and Freddie Mac.

In both the mortgage crisis and the charter industry, these business-model changes essentially transfer the risk to a third party whose incentives don’t necessarily align with those of the originator.

The EdVocate puts it this way:

The bubble that the authors are referring to is one created by what they describe as misaligned priorities from varying parties with interests in the success of charter schools.

Basically, many charter schools are run by third-party groups. The goal of those groups is to either raise revenue or slash costs. Doing so means that students will suffer as the outside entity will likely look to cut expenses at any turn, such as making students that are deemed as a drain on the school’s financial resources go to other schools.

The researchers are Preston Green from the University of Connecticut, Bruce Baker from Rutgers University, Joseph Oluwole from Montclair State University, and Julie Mead from the University of Wisconsin.

Read more in the Business Insider:

An alarming new study says charter schools are America’s new subprime mortgages

The charter-school industry – consisting of schools that are funded partly by tax dollars but run independently – may be heading toward a bubble similar to that of the subprime-mortgage crisis, according to a study published by four education researchers. The study, ” Are charter schools the new subprime loans?”