Charter schools are turning into the next subprime mortgages

Subprime mortgages began as a project to extend credit to poor people to give them a bridge to home-ownership, but it did so by allowing unscrupulous lenders to offer credit on unfair terms, with government guarantees to back the loans, even the bad ones.

Before long, the lack of oversight and the ferocious competition between lenders to cut more corners and sweep the risk for those cut corners off their books resulted in a tower of debt and a decade of defaults that disproportionately affected the poor people the subprime mortgages were supposed to benefit.

Charter schools are also held up as a way to help poor people escape the underfunded, underperforming schools available to their children, and as with subprimes, the government backs the project, moving most of the risk off the charter authorizer's books.

A new paper by researchers from the U Connecticut, State U of New Jersey, Montclair State U, and U Wisc Madison describes the dangerous parallels between the move to increase the number of "independent authorizers" of charter schools and the increased number of subprime mortgage originators, arguing that both of these created the complexity and competition that led to a race to the bottom.

Because authorizers don't have "skin in the game," and thrive by granting more charters, they are poised to issue a lot of bad educational paper, inflating an education bubble whose bursting will deprive the poorest Americans of educational options, and stick the wider society with the bill for the authorizers' fecklessness and profit-taking.

An interview with the paper's lead author, Preston C. Green III, the John and Carla Klein Professor of Urban Education at the University of Connecticut, delves into the study's findings:

Promoters of charter school expansion are calling for an increase in independent authorizers, such as nonprofits and universities. Supporters of charter school expansion believe that multiple authorizers will issue more charters, in part, because they are less hostile to charter schools than school districts. However, our research suggests another reason that multiple authorizers result in more charter schools: multiple authorizers are like mortgage originators with no skin in the game. In other words, these authorizers don't assume the risk of charter school failure. That means that if something happens with the charter school, the authorizers don't have to clean up the mess. Multiple authorizers may also weaken screening by giving charter schools the chance to find authorizers who *won't ask questions.* In fact, CREDO has found that states with multiple authorizers experienced significantly lower academic growth. CREDO suggested that this finding might be due to the possibility that multiple authorizers gave charter schools the chance to shop around to find authorizers who wouldn't provide rigorous oversight.

There is an intense push to increase the number of charter schools in Black, urban communities, where they're very popular because of the dissatisfaction with traditional public schools. Because of this desire for more educational options, these communities are more likely to support policies that could lead to charter school bubbles forming. In fact, I would argue that we are at *Ground Zero* for the formation of such bubbles. Supporters of charter schools are using their popularity in Black, urban communities to push for states to remove their charter cap restrictions and to allow multiple authorizers. At the same time, private investors are lobbying states to change their rules to encourage charter school growth. 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.

Are We Heading Toward a Charter School 'Bubble'?: Lessons from the Subprime Mortgage Crisis

, [Preston C. Green III, Bruce D. Baker, Joseph Oluwole, and Julie F. Mead/University of Richmond Law Review]

(Image: Children Screaming, Will Perkins, CC-BY)