The Costs of Online Learning

By Tamara Butler Battaglino, Matt Haldeman, and Eleanor Laurans / January 12, 2012

Online learning, in its many shapes and sizes, is quickly becoming a regular part of the education experience for many of our nation’s K-12 students. As it grows, educators and policymakers across the country are beginning to ask the question: What does online learning cost?

A very important question, to be sure, and one that our new Fordham-published paper seeks to address. Ultimately, new technology-rich education models will need to be evaluated based on their productivity—that is, the results that they produce relative to the required investment. Unfortunately, within the nascent field of online learning, this information simply isn’t yet available

Our analysis probes, to the extent now possible, the costs of digital education on various dimensions alongside the costs of traditional brick-and-mortar schooling.

This analysis is complicated—and needs to be—because costs vary within digital education just as they do within brick-and-mortar schooling options. Educators and policymakers pursue online learning for different reasons and adopt different flavors of technology-rich models. Resource allocation also varies significantly within these categories. Some models explicitly look for savings, while others aim to free up resources from one area in order to use them elsewhere. Therefore we caution readers against looking for one simple “price tag” for online learning or assuming that apparent savings necessarily translate into a lower overall cost per pupil.

For schools that deliberately use technology to reduce costs in one category so as to free up resources to invest elsewhere, “savings” from online learning are often an important component of the school’s overall resource-allocation strategy. We’re also mindful that economic pressures could require all school models—both brick-and-mortar and online—to cut costs (or keep them neutral) relative to today’s per-pupil-funding levels. But we also need to recognize that a full range of needed experimentation with online learning is going to require some investment and that some models worth trying—and perhaps sustaining—may cost the same, or even more, than traditional schooling. 

A decade ago, the majority of online learning was 100 percent virtual in nature. Today, however, a wide range of online-learning models can be seen. In our paper, we distill these into two broad categories: virtual and blended. In virtual schools (examples include Florida Virtual, K12 Inc., Connections Academy), all instruction takes place online. Students, both full-time and part-time, still interact with live teachers, listen to lectures, work on homework, ask questions, and more, but all such activities occur at a distance, with interactions facilitated by technology. In blended schools, by comparison, students attend brick-and-mortar schools where they alternate between online and in-person instruction (examples include Carpe Diem, KIPP Empower LA, and Rocketship Education).

The figure below outlines the variation in costs of online-learning models versus the “traditional” model.[1] As is evident from the data displayed there, the traditional-school model spends over half of its budget on labor, with the majority of the rest put into school operations. Content and technology costs combined are but a tiny fraction of overall costs. A blended model, by comparison, has the potential to save approximately $1,100 per student (11 percent). By significantly reducing the cost of school operations, a virtual school can potentially save more: some $3,600 per student, a third of the total cost of a traditional school. Bear in mind, however, that these estimates reflect current variation in the field. They are no guarantee of equivalent educational quality, given insufficient data on student outcomes associated with the range of models.[2]

Estimated Per-Pupil Expenditures of Three Schooling Models[3]

 

Schools’ resource-allocation strategies vary among these models based on five primary cost-driving categories: labor, content acquisition, technology and infrastructure, school operations, and student-support services. Within each category, certain expenses are non-negotiable, while others have the potential to leverage some cost savings.

1. Labor

Labor (teachers and administrators), which typically makes up well over half of district budgets, represents the largest opportunity to rethink resource allocation and seek possible “savings.” Not surprisingly, online schools vary widely in their human-capital structures, including student-teacher ratios, salaries, and more. At its most basic level, calculating labor costs per pupil is a simple equation with two variables: the number of instructors and the average costs associated with those instructors (recognizing that these may vary at different points in the school day). Reducing labor costs via technology necessarily involves either decreasing the student-instructor ratio or reducing average instructor compensation, typically by modifying the overall instructor mix such as by combining the use of traditional teachers with others such as paraprofessionals or aides.

2. Content acquisition and development

Content costs in traditional brick-and-mortar schools are relatively small compared to total per-pupil spending; some districts spend less than $200 per student on instructional materials. In a traditional-school setting, content typically refers to the supporting materials used by teachers for face-to-face instruction: textbooks, workbooks, manipulatives, videos, instructional games, etc. Online schools, by comparison, spend content dollars on tools that traditional schools seldom use, such as data-integration/management tools—which can be sophisticated and expensive. 

3. Technology and infrastructure

Technology, often a minimal portion of a traditional school’s budget (about $200 per pupil), is, not surprisingly, a far more significant expense for online schools over every genre.

4. School operations

From transportation to custodians to food services, traditional schools spend significant sums (typically about 15 to 25 percent of total budgets) on non-instructional operations. In some cases, virtual and blended schools have managed to reduce these costs to almost nothing; in other examples, they actually pay more within these categories.

5. Student-support services

Guidance counselors, special-education teachers, and other student-support services (which typically cost up to about $800 per student in a traditional setting) cannot be ignored when considering the costs of online learning. At blended schools, such additional costs (mostly labor) are more easily aligned with the regular school day. For virtual schools, these support services can be significant expenses that require in-person visits (in contrast to the main “virtual” program).

At day’s end, the promise of online learning is twofold: More effective uses of technology have the potential both to improve student outcomes and to create a more productive educational system. While our paper works out the current costs of both virtual and blended models, it does not tackle the question of productivity (i.e., how to improve and maximize student achievement while keeping costs down). We hope it will encourage a focus on better outcome data to help identify the most productive and effective school models. Highlighting productivity is undoubtedly the first step towards rewarding productivity and, over time, getting the most out of innovative school models.

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[1] The average per-pupil figure of approximately $10,000 across the U.S., (not including central-administrative costs) combines all public-school types (elementary, middle, and high school) without regard to district or state variations. The virtual-school number represents an estimate for full-time high school students. The blended figure represents middle school students, as some of the most promising blended models are middle schools. Additionally, as scale can be a critical factor in determining on-going costs, our cost numbers reflect schools with enrollments of approximately 500 full-time equivalent (FTE) students.

[2] One important note: For online and blended students, costs are sometimes reallocated in different ways that do not mean savings from an overall systems standpoint. A virtual school, for instance, may not charge for certain services (i.e., special-education services) that are provided by the home school. This does not represent savings from a system level; it simply means that costs are divided between the virtual school and a student’s home school.

[3] The cost figures outlined in the chart represent estimates gathered from available public documents and conversations with experts and vendors within the field. A wide variety of funding levels exist within online learning; for example, research on virtual-school funding reveals that virtual schools are operating on funding levels that range from below $4,000 per student to above $9,000 per student. Given this fluctuation, we also provide an estimate for variation within each figure (although there are outlier models at both the high and low ends that do not fall within this band).