Craig Barrett, Whitney Tilson really thinks your K12 Inc. sucks

by David Safier

Once again, I address my concerns about K12 Inc. to Craig Barrett, Gov. Brewer's spokesman on education, president and chairman of BASIS charter schools, one of the prime movers behind the Common Core, rich ex-CEO of Intel, and also one of 10 members of the K12 Inc. Board. I don't expect a response from Mr. Barrett. I'm only a lowly blogger, after all. But I hope someone with more stature than I asks him about K12 Inc. His silence on the subject speaks volumes. A response to a few key questions would speak even more voluminously.

So there's this guy, Whitney Tilson, who runs Kase Capital hedge fund. He's shorting K12 Inc. stock big time. Since I posted about this last time, Tilson has put together an amazingly detailed, very long document supporting his case, complete with graphs and quotes. The man makes a very good case. I've read countless negative stories about K12 Inc. — I've written a number myself — and Tilson creates the most comprehensive argument against the corporation I've seen.

Here's the funny thing. I don't agree with Tilson on most things educational, but I have to give him credit for having some idea what he's talking about. His parents were educators. He was one of the first people to teach for Teach for America. He supports the conservative "education reform" and for profit education — if he thinks it's good education, that is. He has his own School Reform blog, where he brags about being on what he calls "Diane Ravitch's Enemies List." So he's not my kind of education guy, but he knows whereof he speaks. He's far closer to Craig Barrett than to me, both in net worth and educational viewpoint. But he thinks the for-profit company whose board Barrett sits on — K12 Inc. — stinks.

According to Tilson,

Like subprime lending and for-profit colleges, the business [K12 Inc.] makes sense on a small scale
but, fueled by lax regulation and easy government money, the sector has run amok.

Here's Tilson's argument in a nutshell:

How certain is Tilson about his analysis? Very certain, and more so since he's heard from people who know K12 Inc. from the inside and confirm his obersvations. I've heard similar stories from former K12 Inc. employees who I've had email and phone contact with, so I know what Tilson writes is accurate.

Here are selections from some of the people he quotes.

• ""I met with Ron Packard years ago and could tell his motivations had little to do with kids,
  everything to do with manipulating state regulation to protect his interests."
• ""I think you are correct about K12. I had an inside view of this company early on.
  They appeared giddy with the fact that they could receive almost the same per-pupil funding
  levels as brick and mortar schools and use the difference for big salaries and profit (on the
  public dime)."
• "When I began to recruit students for the inaugural year of the (OHVA) high school, I
  told parents we have a remarkable curriculum, but it's best suited for students who are
  hard-working, internally-motivated self-starters, and who have at least one parent in
  the home during the school day. . . . Our administrative and enrollment team at OHVA we were able to tell with a high
  degree of accuracy which students would do well academically with us. After the first
  year or so of the OHVA high school program, a decision was made by someone at a
  higher corporate level to market the high school program to all high school
  demographics ranging from at-risk to accelerated (Advanced Placement) students."
• "[C]all
  centers . . . were encouraging enrollment and enrolling students who were obviously
  ill-suited for learning in a virtual environment. It was apparent to those of us operating
  schools that parents weren't being given the whole story. K12 oversold students'
  potential to be successful and obligated teachers to do things they wouldn't likely to be
  able to do. . . . During weekly enrollment calls we were constantly pressured to overlook enrollment
  paperwork that was critical, consistent with best practice, or even compliant with state
  guidelines. For example, in order to speed up enrollment conversions, we were
  pressured by enrollment management to enroll students without a birth certificate or
  proof of custody."
• "K12's phone banks have figured out a way to target dropouts and special ed kids. They
  will sign up anyone – as long as that warm body signs in periodically, K12 can draw
  enrollment money from the district."
• "I taught English at Agora [Cyber School] from 2010-12. It was a horrible experience. Every teacher had the same experience I did. It was all of us. Before I started, I was told there would be a lot of support, a low student-teacher ratio, and that if there were students who didn't show up, they'd take them out and replace them with another. But they took everybody. There was no teacher to student ratio. When I started, I was assigned 300 students, which was very, very overwhelming. I would try to read each of the essays students turned in a try to grade it and spend the appropriate time, but I was really struggling with that. I couldn't keep up. I was told to skim over the papers and grade with a rubric."

This is damning stuff. I've thought for years that K12 Inc. is a house of cards ready to collapse as soon as enough people learn about its failures and students stop signing up in large numbers — and with about a third of the students leaving every year, the corporation needs lots of new students to remain viable. Now I see a hedge fund manager is willing to bet money that K12 Inc.'s corporate model is as bad as its educational model.