Selling supplemental services: can school districts regulate the growing tutoring industry while also serving as a major provider?

Education Next, Fall, 2004 by Siobhan Gorman

During the summer of 2002, Martha Fritchley was leafing through the Yellow Pages in search of tutoring firms. As an assistant superintendent of the Hall County school system in Georgia, Fritchley needed to enlist firms to tutor children in four underperforming schools in order to comply with the federal No Child Left Behind Act. She was particularly interested in home-based tutoring, and she happened on the local franchise of a company called Club Z.

Fritchley called the franchise's owner, Scott Morchower. While Morchower was unaware of the new federal law's tutoring provision, he was of course receptive to the idea. He offered his services to several more districts as well, becoming the sole provider in the 2002-03 academic year of tutoring services for Forsyth County's 75 struggling students. Some of those students jumped as many as three grade levels.

"The results we came out with were awesome," says Morchower. So awesome, in fact, that he worked himself out of a contract: all the schools in Forsyth County left the failing schools list, meaning that their students were no longer eligible for tutoring services. During the 2002-03 school year, students in the supplemental services program made up 20 percent of his business; Morchower figured they would account for 40 percent in 2003-04. Instead, they again made up 20 percent. With such an unpredictable flow of clients, how should Morchower factor children from the federal program into his business plan? "I wish I knew," he says. "That's the $10 million question."

By some estimates it's actually the $2 billion question. That's how much additional revenue some tutoring providers say could be up for grabs in this new federally funded marketplace. But so far, less than 10 percent of eligible students are electing to participate, according to providers' estimates. Morchower said one of his toughest challenges is convincing parents that the service is free to them. Parents will often hang up on him because they think he's a telemarketer, he says. And sometimes parents simply don't want to acknowledge that their child needs help. "Even when I come out to the house, they ask, 'What's wrong with my kid?'" Morchower says.

These tutoring services, known in the law as "supplemental services," arguably represent the federal government's largest free-market experiment in education. In the rush to capture market share, more than 1,000 tutoring providers have signed up for the program. But market uncertainty, combined with differences in how school districts are administering the law, has produced some extremely rocky terrain for these firms. While most providers maintain an optimistic if-you-build-it-they-will-come mindset, the unevenness of parental participation and program implementation is causing significant anxiety.

The New Marketplace

Under the No Child Left Behind Act of 2001, supplemental educational services are funded by school districts with a portion of their allocation from the U.S. Department of Education. Georgia was early to implement its program; most states were just getting on board during the 2003-04 academic year.

States first approve a group of tutoring providers. Then districts draw up their own contract with a subset of those providers; districts themselves can also serve as providers. Once the districts notify parents of their options, parents can enroll with a provider of their choosing.

Within this new marketplace, school districts hold enormous power as a result of their dual role--as both program administrator and potential provider. Districts also have little incentive to inform parents of the money available to them for tutoring, since districts get to keep any unused funds. Some providers allege that districts are not actually setting aside the money as required by law. "We've seen districts where the federal per-pupil allocation says it's $1,800 and the district will say it's $1,100," said one provider. "What happens to that other $700?" The district's dual role also gives rise to a conflict of interest. The concern is that districts enjoy an unfair advantage over other providers because of their direct access to parents. Jeffrey Cohen, president of Catapult Learning (the tutoring firm formerly known as Sylvan Education Solutions), says that he has seen letters sent out by the district that automatically sign children up for the district's program unless the parent affirmatively decides to go with a different provider. "There's not a level playing field," he says.

To overcome these obstacles, most large providers are going around the districts by beefing up their own marketing efforts. Some providers, like Catapult Learning, are running ads and touting their programs with leaflets or promoters who go door-to-door, to shopping malls, and, when allowed, to the school.

Before No Child Left Behind, about $2 billion was spent each year in the retail tutoring market, according to Educate Inc., a national tutoring company formerly known as Sylvan Learning Systems and Catapult Learning's parent company. Half of the tutoring providers were small local companies and individuals, while the other half were regional or national firms. In addition to the retail tutoring market, a few companies, such as Catapult Learning, made an effort to promote public-private partnerships in tutoring, but the marketplace was not well defined.