Review of Literature - Cost Items for Online Schools - April 2008
DarrowReviewof Lit OnlineSchoolCostsMay12008.pdf (Updated May 1, 2008)

SUMMARY - Cost Items for Online Schools

The purpose of this review of literature is to examine the cost items for online learning in K-12 education in the United States, to inform K-12 school districts of the cost items, and ways that online schools are being funded in the United States. Many reports have been issued highlighting the costs and cost items for online learning and establishing and maintaining virtual schools. However, there are limited reports or articles written comparing the costs of brick-and-mortar with online schools. This review of literature focuses on the cost items for virtual schools and a comparison of cost items for brick-and-mortar schools, online schools, and which costs are the same for both. After a brief history and growth of K-12 online learning and a discussion of the effectiveness of online learning, the bulk of this review of literature will focus on the cost items for implementing and maintaining an online school. Appendix 1 identifies all of the cost components for an online school and how they may be applied in establishing an online school in one school district.

Brief History of K-12 Online Learning
Otto Peters was one of the first to make important contributions to distance education theory and described “an industrialized theory for distance-teaching organizations” in 1967. (Beaudoin, 2003). The print version of distance education, known as “correspondence courses” was first developed at the University of Chicago in 1891 (Greenway and Vanourek, 2006).

One of the first reports that documented K-12 online learning described the statewide developing virtual school programs in Florida, Kentucky, Michigan, New Mexico and Utah (Clark, 2000). In this report, Clark set the framework from which all other K-12 online learning research would emanate. For, without any K-12 virtual schools, there would be no students or teachers to study or research. Thus, K-12 online schools are just 11 years old, and the research regarding online schools began after 1997.

Historically, the first statewide virtual school programs were established in the states listed above. Utah Electronic School, considered to be the first, opened to students in Utah, was established in 1994. According to Watson and Ryan (2007) who have authored the Keeping Pace reports, there were 6,365 students who received credits from the Utah Electronic School between July 2006 and June 2007. The Florida Virtual School, considered to be one of the models for K-12 virtual schools, was established in 1997. There were 77 half-credit enrollments in 1997 and that number rose to more than 113,000 half-credit enrollments in 2007 (Florida Tax Watch, 2007). The other well established virtual school program is Virtual High School, Inc. which was initially funded by a 5-year, $7.5 million federal Technology Innovation Challenge grant that began in 1996. VHS, a cooperatively designed virtual school, provides online courses for 457 traditional high schools in 28 states and 23 countries. There were over 7,500 enrollments in the VHS online courses during the 2005-2006 school year (Tucker, 2007).

The number of students who enroll in virtual high school courses continues to grow. The National Center for Education Statistics estimated that during the 2002–03 school year, 328,000 public school students were enrolled in some type of distance education course—including Internet-based and other types of distance education programs (Setzer and Lewis, 2005). As of September 2007, 42 states have significant supplemental online learning programs (in which students enrolled in physical schools take one or two courses online), or significant full-time programs (in which students take most or all of their courses online), or both (Watson and Ryan, 2007).

The number of K-12 students enrolled in online learning program was estimated to be 600,000 in 2005. (Smith, Clark and Blomeyer, 2005). Nearly two thirds of all districts (63.1%) currently have students taking either online or blended courses. Approximately 700,000 public school students were enrolled in online and blended learning courses (Allen and Seaman, 2007). “Online learning is growing at 30% per year. There are an estimated 1 million enrollments in online learning currently,” according to Susan Patrick, Chief Executive Officer, North American Council for Online Learning (Hargadon, 2007). In higher education, the number of online course offerings and students taking online courses continues to increase by approximately 10% each year (Allen and Seaman, 2007).

Cost Item Chart

How are online courses financed?
In one of the first reports about the cost items for K-12 virtual schools, Cavaluzzo (2001) identified how virtual schools are financed. In Florida, there is no charge for virtual school courses, in Kentucky, the schools pay the price for students to attend at a price of $500 per year long course or individual districts may pass the cost on to parents; in West Virginia, the state pays 75% of the cost of an online course while the local district or parents pay the difference. The ways that online course costs can be paid include: state appropriation, percentage formula of regular student full-time-equivalency (FTE) or average-daily-attendance (ADA), grants from individuals or foundations, schools, parents, or any combination of the above (Anderson et al, 2006). Generally, throughout the United States, the FTE model for student apportionment or something similar exists in every state and was developed for brick-and-mortar schools. A student must be present in order to collect each day of apportionment. The student apportionment is all or none – either the student is present or he is not - only full time students are financed through these state funded models. In California, 60% of local public school funding comes from the state allocated through the ADA process, which is based on the number of days each student attends school (Freedman, Darrow and Watson, 2002). There have been two laws passed in California that attempt to allow ADA to be used for funding online schools – AB 885 (2001) and AB 294 (2003). However, the bill known as the “online classroom pilot program” ended in 2007 and no subsequent bills have been passed by the state legislature. Any state or school district will want to identify how online courses will be financed so the school can be sustained in the long term.

In higher education institutions, the funding model follows a different model than in K-12 education. Most 2-year and 4-year colleges receive funds based on the number of students who enroll in a single course (Taylor et al, 2001). However, the start up cost item items for developing and maintaining online courses and the course management system is the same in higher education as it is in K-12 education. Higher education has the similar dilemma of how to finance course development by faculty members and how to meet the ongoing costs of teaching online courses while following state mandated funding guidelines and demonstrating how online courses are cost effective (Taylor et al, 2001).

Other ideas for financing online courses have developed over the last ten years. One is VHS, Inc., an online high school program that originally was financed through a federal technology innovation challenge grant. This cooperative model requires schools to pay a $6,000 per year membership fee, provide a teacher to teach an online course and, in exchange, up to 20 students from that school may take any of the 200 online courses offered by VHS, Inc. In a cooperative, costs are lower because instead of paying tuition, per student, the number of course offerings is balanced with the number of students participating. (Sack, 2003). Secondly, the open educational resource movement is making the tools and content for online learning less costly. (Downes, 2007) . The open source movement is perceived as a culture, an ideology, and potentially, a way for humans to better work together on shared pursuits such as online content or course management platforms (Couros, 2006).

For any online school ventures – whether K-12 or higher education, there are initial start up costs. These include administration, teachers, academic coordination/teacher training, course content, public information, technology, student services, finances, evaluation, facilities, and unanticipated costs (SREB, 2006). Depending on the overall design, some of these costs can be ongoing or one time. All of these cost factors need to be considered in the overall system for the implementation, maintenance and sustainability of an online school.


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