The Convict Who Stole Public Education—Milken’s Online Learning Cash Cow

Huck/Konopacki Labor Cartoons

We hear plenty about the billionaire boys club that has taken control over much of the education reform debate, the unholy triumvirate of Bill Gates, Eli Broad and the Walton Family Foundation. However, they are just the tip of the iceberg. The rogue’s gallery of Ed Deformers who are buying up charter schools, capitalizing on NCLB, bashing teachers and generally destroying public education as we know it, includes numerous hedge fund managers, bankers, billionaires, millionaires and even a few convicted felons, like junk bond peddler Michael Milken.

Virtual Charter Schools Provide Virtually No Benefit to Children (But A Lot To Investors)

K12, the largest U.S. operator of taxpayer-funded online charter schools, has become a cash cow for Milken, according to a recent report in Bloomberg Business Week (cross posted in 4LAKids). K12 has 81,000 students enrolled full-time in its online programs and is expected to generate $500 million in revenue this year (it made $21.5 million in profits last year). Since the company went public in 2007, its stock has doubled in value. K12 online purchased Kaplan Virtual Education this year, a deal that should vastly increase K12’s value and profits, as well as its share of the online learning market.

Online charters make a lot of sense for entrepreneurs. Not only can they do away with teachers unions, but they can do away with teachers entirely (or at least significantly reduce their numbers). They do not need to pay for facilities, counselors, nurses, bus drivers, custodians, librarians, or cafeteria services, and they offer no athletics, band or theater. While most school districts do not pay them the same amount that physical charter schools receive, many argue that even their reduced funding is far too high. In Pennsylvania, for example, K12’s schools receive 80% of what physical charter schools receive, according to the Bloomberg report, an awful lot when you consider how few of the services of traditional physical schools they actually offer. Furthermore, every penny they get from a school district is money taken away from physical schools.

K12 was cofounded by Ron Packard, a former Goldman Sachs banker. K12 has 2,400 employees, including curriculum developers and former executives from PBS and the Smithsonian. Packard created K12 after serving as an executive for Milken’s for-profit education company Knowledge Universe, back in 1999. Startup funds came from Milken and his brother Lowell, who together invested $90 million in the venture, and Larry Ellison, CEO of Oracle, who added another $10 million, according to Bloomberg. Milken and his brother retain a 19% interest in K12, a share that is worth $260 million.

Huck/Konopacki Labor Cartoons

Billionaire Crooks, Eugenicists and Reprobates Bilking Taxpayers and Killing Public Education

Milken is possibly the largest investor in private K12 education. Prior to Knowledge Universe, he also owned Knowledge Learning Inc., (with Rupert Murdoch on its board) and was a major share holder in LeapFrog (See Susan Ohanian). In 1996, Milken formed a partnership with his brother and with Ellison which invested $750 million in 50 ed tech companies. One example was Andy Rosenfield’s internet university, UNext, which Milken and Ellison lavishly funded, according to a CNN report.

Milken, as you may recall, was indicted on 98 counts of racketeering and securities fraud in 1989 as a result of his insider trading and junk bond scamming. As part of a plea deal, he admitted guilt to six securities violations, but was never convicted of any of the racketeering charges. Sentenced to 10 years in a tennis club prison for white collar crooks and permanently banned from Wall Street, he ultimately served only 22 months, paid a hefty $1.1 billion in fines, but bounced back in better shape than the vast majorities of Americans could ever dream of, with a net worth of over $2 billion in 2010, according to his Wikipedia biography.

Larry Ellison, the richest man in California and the sixth richest in the world, is not typically considered part of the education deform network. Nevertheless, he has not only pumped millions into the private digital education sector, primarily in partnership with his criminal crony Milken, but he has made a nifty return on his investments. Furthermore, Ellison also managed to rob several Bay Area school districts of hundreds of thousands of dollars of revenues, each, doing what billionaires do best in their spare time: slashing their tax liabilities. In 2008, Ellison had his Woodside mansion reassessed, receiving a 60% tax cut on his home and a $3 million refund, according to the Almanac Online. The Portola Valley School District saw a revenue decline of between $250,000 and $300,000, as a result, while Sequoia, San Mateo Elementary and San Mateo Union High School Districts also saw big losses from Ellison’s windfall.

Ellison, like Milken, has had his own problems with the Securities and Exchange Commission for insider trading. In 2001 he sold off $900 million in Oracle shares at $30.76 per share just before the stock dropped to nearly half that value on news of low quarterly earnings (InfoWorld.com). Unlike Milken, though, he was able to buy his freedom with a paltry fine of $100 million, which he was able to pay in the form of a donation to his own philanthropic foundation.  He may have been guilty of insider trading again, in September, 2010, when he sold off $217 million worth of Oracle shares, after hiring former HP exec. Mark Hurd, which boosted the value of Oracle shares. However, there doesn’t seem to be any interest by the SEC to investigate this latest scam.

Packard initially convinced the Bill Bennett, former secretary of education under Reagan, to partner with him on his K12 venture. Bennett eventually resigned after saying on his radio show "I do know that it's true that if you wanted to reduce crime, you could—if that were your sole purpose—you could abort every black baby in this country, and your crime rate would go down." While acknowledging that he found such a policy reprehensible (a Christian conservative certainly couldn’t be promoting abortion, could he?), he did not back down from his presumption that black people are responsible for most crime or that making them all go away would be good for society. Profits trump ideology. So Packard had no choice but to let him go. After all, we don’t want racists running a school (or in this case a virtual school system), do we? Yet, apparently it is quite alright to have a convicted criminal running a school, in the case of Milken, who still consults with Packard on a regular basis about their enterprise.

Bennett, of course, is not simply a conservative racist who lacks the self-control to refrain from demonstrating his genocidal bigotry on national radio. (He also told Larry King that beheading drug dealers was morally plausible, ostensibly because they’re all black). He has also demonstrated hostility toward teachers, children and public education through his support for merit pay, national testing, vouchers, slashing federal college scholarships, trying children as adults in criminal court, and promoting religion in school). Oh, and let’s not forget that while he sends all the drug dealers to the guillotine, and preaches morality to our youth, he himself has lost as much as $8 million in high stakes gambling (see WSWS expose on Bennett’s gambling addiction).

Virtual Schools and Educational Quality

Aside from the greed and corruption inherent in private virtual charter schools, there are some obvious problems with online learning in terms of the quality of education they provide. This is particularly true for K12’s 81,000 full-time students, who do all of their schoolwork from their homes. They are not getting the socialization and live, in-person interactions that students receive in traditional public schools. They are not learning how to cooperate, resolve conflicts and work in teams the way they would with real live classmates and adults. Proponents argue that online education helps avoid the negative aspects of socialization, like drugs, bullying and sexual activity. However, this isn’t true. Cyber bullying is well-known, as is the phenomenon of kids developing online relationships, including ones with sexual predators. Furthermore, kids can still learn about drugs and succumb to on-line peer pressure. They can still obtain drugs from neighborhood kids, at the park, or the other usual places where drugs can be found. In fact, there is no reason to believe that a sheltered existence provides any protection at all. Rather, it could just make children more naïve and ignorant and thus more easily victimized.

Another problem is that virtual schools, like college online learning, presume that students will spend a certain amount of time in front of their computers, doing homework, reading, and generally maintaining a level of self-discipline and organization, something that does not even happen with all virtual college students. However, here we are talking about high school, middle school, and in some cases elementary school students, who are expected to do all this work at home, often unsupervised, as their parents may work outside the home. The Bloomberg article suggests that at least 15% of the students in Pennsylvania’s Bangor District cyber schools were regular truants.

Not surprisingly, 75% of K12 schools failed to show adequately yearly progress on their state exams. This is significantly higher than the 45% of physical schools that are currently failing to meet this federal benchmark. Packard blames the statistic on his students, who tend to be lower income. While he may be true (lower income students do tend to perform more poorly on standardized exams), he still needs to be held to the same standards (as stupid as they are) as traditional schools. Furthermore, in urban districts like Los Angeles, New York, Chicago, Washington, large percentages of the students are also low income. In San Bernardino, California, 85% of the students are on free or reduced lunch. In Fresno and Santa Ana it is 76% and 75%, respectively. In Los Angeles and Oakland, it is 74% and 73%, respectively. (Data from the California DOE website). Therefore, I find Packard’s justification specious.

Teachers, needless to say, are not thrilled with virtual classrooms like K12. The Chicago Teachers Union sued the Illinois State Board of Education in 2006 to challenge the state’s decision to spend taxpayer dollars on the nonprofit Chicago Virtual Charter School (See David Randall’s piece in Forbes). The school, like many virtual schools, does not provide sufficient certificated teachers, which the union said was tantamount to making taxpayers pay for homeschooling.

Despite K12’s lack of success in terms of improving student achievement, they have been so successful financially, that they have attracted others to their cause. In April, Technology Crossover Ventures invested $125 million to K12’s accelerated expansion plan (see Gilfus Group).