Market Commentary: Charter Schools Move to the Top of the Class

by Gayl Mileszko

Charter Schools Move to the Top of the Class

The early weeks of June typically mark the last days of classes for elementary, secondary and college students across the country. While some continue their studies during the summer term, vacation season counts among the happiest times of year for young scholars and their families. Teachers take advantage of the break to recharge, but also to refresh curricula and classrooms, plan lessons, and earn new certifications. Administrators meet to recap the challenges and successes of the past year and look ahead to the fall, taking into account changes in the political, economic, and academic environments. Many school districts face the same plights: difficulty in recruiting and retaining teachers, escalating wages, declines and shifts in the student population, uncertain and declining funding streams, helping students to recover time lost during the pandemic lockdowns, and, in some cases, new legislative changes.

School Choice

There is a growing school choice movement in the U.S. with 32 states plus Washington, D.C. offering options such as vouchers, according to the nonprofit organization EdChoice. Some private schools are beneficiaries but charter schools appear to be gaining the most momentum. There appears to be good reason for the gains according to one new study showing that this significant subset of public schools is outperforming their traditional counterparts. According to the National Alliance of Public Charter Schools, there are 7,821 charter schools with 3.69 million in 45 states plus the District of Columbia, Puerto Rico and Guam. This represents about 7% of all public school students. Most are authorized by local school districts, but some receive their charters from state agencies, universities, or non-profit organizations. About 65% of charter schools manage their own operations, while the remainder contract with non-profit or for-profit management organizations that may run as many as 200 campuses.

Most Charter Schools Are Outperforming Traditional Peers: Stanford CREO

Stanford’s Center for Research on Education Outcomes just published the third study, As A Matter of Fact, National Charter School Study III (link here), in a series that began in 2009 with 1.8 million students enrolled in charter schools in 29 states and two major cities as well as a control group of local schools. They found that most charter schools “produce superior student gains despite enrolling a more challenging student population.” Black, Hispanic and children in poverty had some of the most noteworthy gains. Rhode Island charter students were shown to be 90 days ahead in reading and 88 days in math. Some differences were seen as amounting to an extra year of learning in elementary classrooms, with many gains attributed to the flexibility inherent in charter schools enabling them to tweak practices over time to meet or exceed goals.  Every school is different, however, and outcomes are impacted by school type, management, location, and student circumstance. In addition, disabled students did not fare as well in the charter school classes studied; they lost about 14 days of learning in reading and 14 days in math when compared to peers in traditional public schools. And online charter school students in the pre-pandemic years of 2014-2019 lost 58 days of learning in reading and 124 days in math.

S&P Global Ratings Charter School Medians and Trends

This week, we welcomed the release of the latest charter school medians by S&P Global Ratings.  These medians provide important benchmarks on enrollment, wait lists, student retention, debt service coverage, days cash on hand, excess margin and debt per student, for example, that the agency uses in rating charter schools, and our bankers, traders and analysts use in surveilling charter school credits. In the course of compiling this data, S&P representatives spotted a number of industry trends that they shared in a webcast held on June 15 with several hundred bankers, advisors, investors and reporters along with a representative from the National Alliance for Public Charter Schools. S&P has a team of about 25 analysts that currently rate more than 1,400 charter schools. The panelists hosting the call noted improvements in the performance of charter schools and expectations for continued growth in the sector. They found that families who switched to charter schools during the pandemic were generally happy, and noted that charter schools were becoming more engaged with their communities. Network schools are generally meeting with more demand than single site schools. Federal Elementary and Secondary School Emergency Relief program funds have enabled schools to tackle behavioral health issues and learning loss, provide well-deserved bonuses to help retain key teachers and staff, procure new technology for student use and undertake deferred capital projects.

Nails on the Chalkboard

A number of headwinds nevertheless challenge the success of some charter schools. On top of inflation and recessionary pressures, extreme weather, local school district battles, and constant safety and security worries, there are other harsh realities that confront managers. The S&P panelists cited data from the National Center for Education Statistics ad McKinsey & Company showing that there has been a major loss of learning that may take some students up to five years to recover. Testing results will suffer in many cases and this may intensify charter school renewal discussions. The federal fiscal situation virtually eliminates the prospect of additional stimulus, and stress on state budgets could adversely impact future per-pupil funding. Many schools face teacher shortages due to burnout. Major cities are grappling with demographic shifts that increase competition for students. Parents with vouchers in some areas have the option of moving to private schools. The political climate in some Northeastern, Midwestern states and California places constraints on growth. And impairments for both rated and non-rated charter school bonds are increasing.

Go To The Head of The Class

HJ Sims is a strong supporter of U.S. charter schools and our education team has financed more than $7 billion of start-ups, building acquisitions, and campus expansions.  If you would like more information about charter school medians and industry trends, or assistance with board education, risk management, capital planning, debt issuance or portfolio reviews, please give us a call.

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