Perspectives From a For-Profit School
Howard Wang has a lesson for investors intrigued by the idea of educating kids for profit: It’s not as easy as it might appear.
Wang is co-director and co-owner of the Sierra Canyon School in Chatsworth, a green, six-acre oasis in the dusty horse country of the North Valley.
The school has won national acclaim for its academic achievements, it has a waiting list yards long and--good news for Wang and partner Mick Horwitz--it makes money.
It’s getting harder, however, to match that feat.
“To duplicate what we have would be impossible today,” Wang says. “You’d have to go out to Lancaster or Palmdale to buy the land as cheaply as we did, and then you wouldn’t have the student base.”
Horwitz estimates that Sierra Canyon’s land and buildings would cost $5 million to $6 million now--too much for an investment that will take in around $2.5 million in tuition next year, plus about half that amount in summer-camp revenue.
The partners don’t disclose their profit, but they say that beyond the good salaries they pay themselves as administrators, there isn’t a lot left on the bottom line each year.
For-profit education got a big publicity boost last week when Yale University President Benno C. Schmidt Jr. announced that he was leaving that prestigious post to take on a high-risk, high-pay job running Whittle Communications’ Edison Project, an ambitious plan to create a national network of 200 private, for-profit schools by 1996.
For the time being, Schmidt’s main job will be helping to raise the $2.3 billion in capital that company founder Christopher Whittle has targeted for the Edison Project. That comes to $11.5 million per school, each of which will have about 500 students.
Whittle has said that he wants tuitions at his school to match the average per-pupil cost in U.S. public schools--now about $5,500.
Skeptics doubt that he can provide quality education at that price without subsidizing the project by inviting advertising or other corporate tie-ins. Whittle, after all, is the entrepreneur who introduced for-profit television--complete with commercials--to American schools through his Channel One network.
With tuition at $6,800 for its 400 elementary schoolers, Sierra Canyon is not cheap. But Wang says the school turns away about nine out of 10 applicants.
Demand, in fact, is so strong that an economist might tell the partners that they are not charging enough. Pricing the middle class out of the school, however, might narrow the pool of academic talent that makes the school so attractive in the first place.
Two years ago, Sierra Canyon was the only for-profit school among 221 public and private schools in the nation honored with the U.S. Department of Education’s Distinguished School Award and the only private school among California’s 17 winners.
Its students’ average scores on standardized tests in the 1988-89 school year placed them in the 86th percentile for mathematics and 87th percentile for reading.
Wang, a former teacher in Newhall public elementary schools, opened Sierra Canyon with his friend Horwitz in 1977 after they had run a successful summer camp for several years. Parents told the two that their kids were so enthusiastic about what they learned in camp that going back to school at the end of the summer was a letdown.
“They told us that if we’d open a school, they would support it,” Wang recalls.
Today the school has two swimming pools, an outdoor amphitheater for dramatics and 35 adjacent acres of hilly land it leases for nature walks (part of the regular curriculum) and summer camp activities. There is one computer for every six students and one teacher or assistant teacher for every 12.
A powerful advantage Sierra Canyon has over its public school competition is that it can carefully select its customers. Aside from a few children with minor physical disabilities, there are no special-needs students and none who aren’t completely fluent in English.
Because it’s relatively easy to attract teachers to a place like Sierra Canyon, salaries are lower than in public schools. Very experienced teachers may be paid in the mid-$30,000s, perhaps 20% less than they could command in some public schools, although Wang says the pay gap is being narrowed.
It isn’t clear that Whittle schools will have similar advantages. Whittle has said that at least some of his schools will serve poor, inner-city neighborhoods. He thinks that he can use teachers more efficiently and have a trimmer administrative staff than most public schools.
From Wang and Horwitz’s perspective running a school whose land costs are lower, whose tuition is higher, whose market is wealthier and whose profits are still modest, it will be amazing if the Edison Project succeeds as a business venture.
But, as Wang says, there’s always the chance of a breakthrough along the lines of the new radio-wave light bulb announced this week. “Education,” he says, “has barely changed in 200 years. It’s ready for innovation.”
