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Poised to Rake in the Bucks from NCLB Supplemental Services Provision

On January 8, 2002, President Bush signed into law the 2001 reauthorization of the Elementary and Secondary Education Act (ESEA) - enacted as the No Child Left Behind Act of 2001 (NCLB) - an occasion that many heralded as a watershed event in the realm of educational policy and funding for under-performing districts, schools, teachers, and students throughout the country. For many K-12 education companies, NCLB offers an explicit blueprint for areas in which the federal government believes districts and schools should be focusing more time, energy, and resources. As a result, reading, language arts, and mathematics curricula; assessment programs; professional development; and supplemental services have become the "hot" K-12 market segments. Within the supplemental services arena, companies offering academic remediation and enrichment programs - such as tutoring providers - anticipate benefiting not only from considerable coverage of the NCLB legislation, but also from the 5-20 percent of Title 1 dollars that local education agencies can allocate to state-approved supplemental services providers.

Early Implementation Challenges in the Supplemental Services Provision
While NCLB has been a public relations success, for states, schools, students, and supplemental services providers, the details have been devilling. Nearly a year after the bill's signing, implementation of the supplemental services provision is still in the early stages. Notable challenges thus far include:

* Defining "Adequate Yearly Progess" - Title 1 schools that fail to meet "adequate yearly progress" (AYP) targets for two consecutive years are designated as requiring improvement. However, most states are still grappling to codify a process to define and calculate AYP. Each state must submit its definition of AYP to the Department of Education for approval by January 31, 2003.

* Identifying eligible schools and approved providers - Education officials in New Jersey originally declared that all its schools had met AYP targets, as did those in Arkansas and Florida. The U.S. Department of Education has subsequently challenged these findings and required these states, as well as others, to revisit their AYP definition and targets. Eduventures' research indicates more than 30 states have failed to determine approved supplemental services providers, creating a further drag on program implementation.

* Marketing program availability - While federal and state education officials and providers are well aware of the NCLB supplemental services provision, most parents of eligible students are unfamiliar with it. Schools are only obligated to communicate with parents once regarding supplemental services availability; given the myriad of issues facing struggling schools, it is not surprising that in most cases their "marketing" efforts have achieved limited success in attracting large numbers of students.

These challenges notwithstanding, leading educational services providers such as Sylvan Education Solutions, Kaplan K12 Learning Services, The Princeton Review, Huntington Learning Center, Kumon, HOSTS, and Tutor.com, among others, are actively developing programs, or modifying existing ones, to fulfill potential student demand.

For-Profit Providers Optimistic, But Realistic, About the Opportunity
Sylvan Education Solutions, which provides a wide range of supplemental instruction, after-school enrichment programs, and academic services to schools, districts, and community organizations, is already offering programs well positioned to assist eligible students. At Kaplan, the company's K12 Learning Services business is developing two programs that it plans to offer to parents and students. One includes 30 hours of small-group instruction emphasizing math and reading skill development for middle and high school students. The other is a live online program, also targeting middle and high school students, that focuses on critical thinking and study skills. For parents selecting Tutor.com's services, students can work with the company's vast network of online tutors for a full year after completing an initial state-correlated assessment.

In all cases, these providers stress that their solutions are focused on creating a rich learning environment to drive improved student performance. Moreover, the brand awareness and marketing savvy of companies like Sylvan, Kaplan, and The Princeton Review could prove to be a key variable in raising awareness of the supplemental services opportunities for parents and students in eligible schools. As one of the challenges faced by schools is educating parents about the options available, these firms offer a value proposition to educational leaders that extends beyond the educational realm; matching the infrastructure of local districts with the marketing know-how of these firms represents a powerful, albeit politically challenging, partnership opportunity for enhancing program awareness.

However, for each company, service costs and business requirements play a factor in the services that they can provide. Annual district per pupil allocations for supplemental services funded by NCLB range from $400 - $1,300, according to a defined formula, and executives note that their organizations may not be able to deliver the types of educational programs students require at the low end of the range. With tutor time the critical variable cost for many of these businesses - and the most important element in the educational experience for students - national providers may find it financially difficult to provide services in some locations, creating opportunities for local providers, non-profits, and faith-based organizations that may have different cost structures.

Moreover, these leading tutoring and test preparation providers remain realistic about the near-term revenue opportunity for their businesses as a result of the supplemental services provision of NCLB. Few anticipate significant revenues during the second half of this academic year, as states' struggles and delays have pushed back delivery of program services until January 2003 - at the earliest - in nearly all cases. As a result, companies find themselves managing their participation carefully, committing business resources and attention to those states where clear demand for services has been generated by districts and schools, while adopting a "wait-and-see" approach in others.

Despite the slow start, leading supplemental services providers are optimistic about the long-term impact for the market. Nearly all agree that the supplemental services provision of NCLB is only the tip of a much larger opportunity and fundamental shift in the perception of out-of-school time academic remediation and enrichment services. Currently, the supplemental services provision makes additional academic resources available to only a small percentage of U.S. students. However, if companies like Sylvan, Kaplan, The Princeton Review, Tutor.com, and others can improve the performance of those students in greatest need of academic assistance, it will send a strong message regarding the way in which supplemental programs, in complement with traditional instruction, can assist all schools and students in achieving their academic goals.

— Adam Newman
NCLB Supplemental Services Provision
Dec. 18, 2002


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