Tiny Indiana District With Online School Worth Millions Ordered To Close

Get stories like this delivered straight to your inbox. Sign up for The 74 Newsletter

The Union School Corporation in the tiny town of Modoc — population 157 — fits many stereotypes of quaint rural Indiana, with its corn fields, dirt roads and Angus cattle farm right next door to its school campus. 

But it’s a different type of cow — the cash cow of an online school — that makes Union anything but a typical rural school district. 

State legislators say they have put Union on the chopping block because of poor performance. But district leaders believe the real reason is so the state can reap the benefits of the Indiana Digital Learning School, a virtual school Union has overseen since 2017 — growing to 7,500 students and paying the district an estimated $3 million in oversight fees annually.  

That school is now the latest battleground in a years-long controversy in Indiana and nationally over who should oversee and earn money from online schools and the millions in tax dollars flowing through them.

Citing poor test scores, Indiana’s state legislature voted in April to close the Union schools by 2027 and send its 300 students who attend classes in-person to neighboring districts miles away. 

The online school would then be on its own and either shut down or bring its millions to another partner, either another district, the state or as a charter school.

Tucked into a major state tax reform bill as a last minute amendment, the legislature’s vote came as a surprise to the district, with no opportunity for debate.

Union is challenging the vote in court, saying it was singled out and that the legislature violated state law. Angry residents are defending the district, with even the electronic sign outside the Modoc United Methodist Church switching between listing service times and stating: “We Support Union School Strong!”

“I don’t know what to do,” said Danielle Baker, who has a son going into sixth grade in the fall. She called the vote “alarming” and is struggling to figure out where her son can finish school. “I feel helpless. So I’m just trying to put on a brave front, I guess, and just see what happens.”

Republican state representative J.D. Prescott, who called for the closure, said the move was necessary because Union has “some of the lowest reading scores in the state.”

But the district believes the real reason is the millions it receives from the INDLS, which is run by the publicly-traded virtual learning company Stride Learning, formerly known as K12 Inc. 

“It has nothing to do with the school performance,” said Union Superintendent Galen Mast. “It has nothing to do with school size. It has everything to do with a greater plan that’s behind it.”

Union attracted statewide and national notice when it partnered with K12 in 2017 to start the online school as a way to boost dwindling enrollment and avoid bankruptcy. Private companies can’t just open a school and take in tax dollars for students who attend. So they need either the state or a school district to approve them to operate, or a designated agency known as an authorizer if they want to operate a charter school.

Union’s arrangement allows Stride/K12 to run the for-profit digital school as part of the district. In return, it gives Union 5% of the virtual school’s revenue, a huge bonus for a tiny district, especially now that the online school has grown dramatically.

Union school board president Christina Ogden said a state senator told her INDLS must close because the state wants to create its own online school. She and Mast said Prescott also told them the district could avoid being closed if it gave up its money from the digital school.

“I think they had to take out the one (online school) that had the most students first, and then it’ll be easier to go ahead and go around and close all of the others,” Ogden said. “The state wants to control those funds.”

She said Prescott withdrew the offer as soon as he found support in the legislature to pass his amendment that will close Union schools.

Mast also believes the vote was about the virtual school money.“We’re not the smallest school. We don’t have the worst results, but we are tied to NDLS,” Mast added. 

The future of the online school is unclear, since it’s not even mentioned in the law. Stride/K12 declined to comment, saying only that it wants the school to stay open and it’s too early to speculate how.

The Indiana Small and Rural Schools Association also objected to the legislature’s decision, saying the state should let small districts decide their own fate, not order changes, especially without debate.

“We’re just trying to figure out what is the threshold,” said Christopher Lagoni, the association’s executive director. “What is it that says ‘This is the standard for closure?’ Or is it an individual, case by case basis?”

“Everybody’s kind of in the dark on that,” he added.

Prescott did not respond to written questions from The 74 about whether he asked Union to give up the online school. He repeated concerns about Union’s test scores, though the state not giving districts grades each year since the pandemic makes comparing districts complicated. 

“This amendment is about starting a conversation on how to better serve these students and ensure they have access to a quality education,” he wrote.

Indiana Secretary of Education Katie Jenner said the state isn’t planning an online school right now, but said the state education department will review Indiana’s entire online learning system next year. That review will look at all parts of online schools, including how many virtual schools Indiana should have, their funding and who can create or oversee them 

“Everything,” is how Jenner described the review. 

“The question is, what guardrails or flexibilities do we need to have in place to make sure we’re getting the outcomes that we need for kids,” Jenner said.

That review won’t be an easy one because multiple districts, including one involving an influential Indiana family, all have an interest in having online school money in their budgets. 

Union and the Clarksville school districts are the only districts with statewide e-schools. Many other Indiana school districts have created or are exploring online schools that serve local students to bring in more money or to keep them from departing to other online schools. 

There’s also a much broader debate nationally within the school choice community about overseeing online schools as a way to earn money. 

That has flared up mostly with online charter schools, whose relationship with their authorizers is similar to Union’s with INLDS. The National Association of Charter School Authorizers has criticized what it called “perverse incentives” of organizations that are supposed to make sure online schools are doing a good job but are also making more and more money if schools grow, even with poor results.

Oversight fees for online schools have since been a major controversy in several states, including California where officials near San Diego have been criminally charged for lax oversight, even when receiving fees that far exceeded what it cost to oversee the schools.

Though NACSA isn’t using such strident language today, it recommends that authorizers be paid only what it costs to oversee the schools, not a percentage of revenue. It also recommends that school districts should not authorize statewide virtual schools — a parallel to what Union and Clarksville are doing. Instead school districts should only oversee virtual schools serving students in their area.

Indiana state officials also have little confidence in small districts overseeing large online schools after two virtual charter schools overseen by the 1,000-student Daleville school district were found in 2017 to be defrauding the state with inflated enrollment numbers. State and federal investigators have estimated the schools improperly received between $44 and $154 million and have pursued separate cases, both criminal and to recover money.

Most recently, the superintendent of the two schools pleaded guilty early this month to a federal charge of conspiracy to commit wire fraud as part of the case. Efforts to recover money are still ongoing.

Scott Bess, a state school board member and founder of the Indiana Charter Innovation Center, said he believes online schools can work well, but local school boards aren’t prepared to oversee giant virtual schools run by companies like Stride worth $3.5 billion.

“I would never advocate for a local school district to partner with a virtual school operator to run a large virtual operation, because that’s not what that school district does,” said Bess. “The school districts are set up to be local, community driven.”

Applying that belief evenly, however, would put the state at odds with the Clarksville school district.

Clarksville also partners with Stride/K12 and the Indiana Gateway Digital School, is run by a family with political influence Union lacks. Clarksville’s superintendent Tina Bennett is the wife of Tony Bennett, the former state superintendent of Indiana and Florida. He was also an executive at Stride/K12 before retiring in March.

The Union School Corporation, which also includes a few other small towns, has long had a budget and enrollment problem. With few students and all separated by acres of crops, enrollment has always been low. And while it’s not quite a one-room schoolhouse it has one strip-mall style school building that houses district offices, its elementary school and combined junior/senior high school.

It has also almost shut down a few times.

The district has explored merging with other districts more than once, while the state has also debated ordering small districts to consolidate. Union’s future has been so uncertain, district officials and residents say, that parents have sometimes sent their children to other schools to avoid having to change schools later.

The partnership with K12, now Stride, changed that. The district added the online school as a district program, offering a few rooms in its offices as a base, in return for 5% of the e-school’s revenue.

The school isn’t a charter school, but the arrangement is similar to how online charter schools pay their authorizers, the non-profits that allow them to open as schools and then oversee them.

As the online school grew, the district’s budget improved and Mast, who just joined as superintendent a year ago, said the school uses the virtual school money to improve its facilities and special education classes.

Sarah McCord, the owner of the Modoc Diner down the street from the school campus, said she lives in a neighboring town but sends her two children to Union because it has small class sizes and helped her daughter with a learning disability improve rapidly.

“A lot of parents are choosing Union because of the attention that their children are getting without having to pay private school costs,” McCord said.

She believes Union is taking unfair criticism for test scores because parents are sending their children for personal attention and a chance to catch up. If they improve, but don’t score at grade level, McCord said, the district looks bad and is unfairly targeted.

“I think it’s an injustice,” she said.

Get stories like these delivered straight to your inbox. Sign up for The 74 Newsletter