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Are We Heading Toward A Charter School ‘Bubble’?

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Are We Heading Toward A Charter School ‘Bubble’?: Lessons From The Subprime Mortgage Crisis

Preston C. Green III

University of Connecticut

Bruce D. Baker

Rutgers, The State University of New Jersey – Rutgers University, New Brunswick/Piscataway

Joseph Oluwole

Montclair State University

Julie F. Mead

University of Wisconsin – Madison – School of Education

December 16, 2015

University of Richmond Law Review, Forthcoming


In this article, we explain how charter schools may be developing conditions that are reminiscent of the subprime mortgage crisis. We also explain the process in which charter school bubbles might form and burst in Black, urban communities. Finally, we discuss the steps that federal and state governments should take to avoid the creation of bubbles in these vulnerable neighborhoods.

Are We Heading Toward A Charter School ‘Bubble’?: Lessons From The Subprime Mortgage Crisis –  Introduction

Since 1992, 43 states and the District of Columbia have passed charter school legislation. Charter schools are commonly defined as public schools that are given considerable latitude from state rules and regulations that apply to traditional public schools while being held accountable for student achievement. There are more than 6,700 charter schools nationwide, serving nearly 3 million students, which accounts for 6% of public school enrollment.

Charter school advocates have called for the removal of obstacles that limit their expansion, such as the lack of charter school authorizer options, and caps on the number of charter schools allowed within a state.4 The federal government has also sought to increase charter school growth through financial incentive programs like Race to the Top, which authorized the U.S. Department of Education to expand support for high-performing charter schools.

However, charter schools have also been plagued by scandal both in terms of financial management and with respect to student discipline. For instance, two governmental watchdog groups claimed to have uncovered $200 million in charter school fraud, abuse, and mismanagement in 15 states. And a report of the disciplinary practices of Chicago schools revealed that charter schools expelled 61 of every 10,000 students, while district-run schools expelled only 5 out of every 10,000 students.

Mark Naison, a professor of African American Studies and History at Fordham University, has claimed that the charter school scandals are beginning to resemble the subprime mortgage crisis. Subprime mortgages were loans offered by financial institutions to persons whose financial standing was too weak to qualify for a typical mortgage at the prevailing interest rate. To protect lenders, these mortgages were issued at much higher interest rates, with foreclosure as the penalty of default.10 Despite the risk to subprime borrowers, the federal government sought to increase homeownership among the working class and minorities by encouraging subprime lending. As a result, seeing an opportunity, private lenders entered into the subprime mortgage market in earnest. Their aggressive lending practices created a housing bubble, in which the value of residential real estate rose to artificially high, unsustainable levels. This bubble burst and home values plummeted, when subprime borrowers were unable to keep up with their mortgages. Not only did the housing bubble cause the virtual collapse of the housing industry, but it also contributed to a worldwide recession.

With respect to charter schools, Naison asserted that, similar to the subprime mortgage situation, the federal government encouraged the charter school sector to expand with little oversight. As a consequence, Naison explained that charter schools are experiencing abusive practices at a level resembling the subprime mortgage crisis. These abuses have taken on two forms: (1) mistreatment of students and teachers (e.g. the refusal to educate special needs and English Language learners); and (2) financial issues, such as embezzlement and real estate fraud.

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