Funding Challenges and Solutions for Microschools

Don Soifer, CEO and co-founder of the National Microschooling Center, joined me to discuss the Center’s latest comprehensive report on the evolution of American microschools. We explored how microschools are growing in size, serving a wider age range, and increasingly enrolling students with diverse needs. We also delved into differences between microschools in states with and without Education Savings Accounts (ESAs), the significance and challenges of accreditation, business models and funding, and the dynamic, adaptable nature of the microschool sector.

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Michael Horn

Welcome to the Future of Education. I'm Michael Horn and you are joining the show where we are dedicated to creating a world in which all individuals can build their passions, fulfill their potential, and live lives of purpose. And to help us think through how we get there today, I'm delighted that we have a repeat guest. We don't always have repeat guests on the show, but Don Soifer is someone who I hold in very high regard and so I'm just delighted to welcome him back. As a reminder, he's the CEO and co founder of the National Microschooling Center. He's been in and around the changes in innovation in education, several waves of them, for a few decades at this point.

And Don, I won't go through everything, but it's just, it's really good to see you, man. Thanks for joining.

Don Soifer

Thanks for having me. It's a real pleasure.

Microschools Evolving, Serving Older Students

Michael Horn

Yeah, no, and look, in May, you all released at the center your latest analysis of American microschools. It's a 40-page report, so we will not get into all of it today, but people should visit the National Microschooling Center, check it out, see the findings. But there's a lot in there that I wanted to learn more about personally and shed light on. And so I thought where we would start is this. And it seems from the report that the nature of microschools themselves are evolving. They're getting a bit bigger, it seems particularly, I think when you zoom out of the microschools that are really homeschooling centers, they're starting to serve older students as well, which I think is pretty notable as I think you, the stat was 84% of microschools serve kids age 5 to 11. But now 52% of the universe, if you will, of microschools that you surveyed are serving kids ages 15 to 18, which is a much higher population. And it seems like a big sea change because, you know, for a while you would hear, oh, microschools works great for elementary, middle school, but a lot of kids, you know, they want to go back to traditional high school because they want Friday night lights, college, whatever it is.

And so I would just love your commentary of like, what's changing across these dimensions that's maybe leading to this evolution in the size and the ages of who microschools are serving.

Don Soifer

Great. Well, thanks. So I think first of all, it's important that this is the biggest, deepest, widest research on the sector to date. So we interviewed 800 microschools in all 50 states. So hopefully this is the closest thing to a representative sampling of what's going on out there yet. And I think the other, the other point I think that's worth reiterating is that microschooling is not a new thing that somebody smart invented during the pandemic. Right. What we're doing is updated by a lot of what we now know about pedagogy and the way children learn and all sorts of great additions in this golden age of digital content that we work in.

But microschooling is something that's been going on for a very long time, right. Reporters often ask, and I say, I don't know, maybe the first microschool was maybe the book of judges, but that feels very western centric. And obviously when Slate Blackwoods came across the prairies on trains, one room schoolhouses were taking off. So for sure. So, so what is, what is, what's happening now as we move maybe from left to right on the adoption curve? In some communities, there are definitely places and we're out in the country all the time, and there are definitely some ecosystems that microschooling has gotten more common, more people are aware of it. The people that track things like terms in Google searches will tell you that there are more people in south Florida or some spots like Mississippi or Kansas or the greater Atlanta area where more people are aware of microschooling. We've been doing it for longer.

We see some shifts in who's participating because more people are aware of it. So there definitely is some evolution of the sector that we're seeing. And part of that comes from the fact that the kids we had in microschools, many of them did start during the pandemic, but they're getting older. And microschools, we've seen a trend in homeschooling for year that homeschooling may get a little bit more boring and standardized when kids get to high school because parents don't want to mess up. They want to make sure the kid has the opportunity to play in a NCAA Division 1 sport. And so they're going to sort of collapse, you know, high school is complicated.

It takes more confidence with the subject matter. And we generally see families, maybe, you know, this is the golden age of digital content, but families, when they get to high school might be more inclined to draw all of their content from one particular provider in the name of it being accredited and that somehow helping them with their future options. So high school is more complicated, for sure. But more and more microschools are getting into tackling it, and we're seeing some real evolution over there and it's some really inspiring models and some, some really, you know, they're really learning from each other and it's an evolution of the sector. I think it's a good example of one.

Serving Diverse Student Needs

Michael Horn

Well, so I, let's stay on this because I think the other thing that jumped out to me about these schools and who they are serving is that a lot of the students are former public school students. A lot of them are in the median income bracket, it looked like with nice distributions on the low income and higher income. But a lot are sort of squarely in the middle, at least self reported. It's pretty diverse. And then this, you had 74% of microschools of these 800 that you surveyed report serving children with neurodiversities, 46% with other special needs, 63% of students who came to them two or more grade levels, excuse me, two or more grade levels below their quote unquote age, and 50% who've experienced emotional trauma. So look, you were in the charter school world well before I was. But as you know, charter schools were often accused fairly or unfairly of not serving students with special needs. It seems that this, that charge can't even get lift off here from based on what you're learning anyway,

Don Soifer

Thanks. You touched on some of my very favorite findings. Microschools are more likely to serve kids from slightly below or significantly below the average income in their area than above. More kids come to microschooling from traditional district operated public schools than anywhere else. And coming from homeschooling is a somewhat distant second. So microschooling and we do very well toward the fragile end of the income spectrum. We do very well with families with a child with neurodiversities or other special needs. So microschools are not a school choice play. They're taking off in the blue and the purple states every bit as much as in the red states.

And there are some slight differences you see in trends there. But microschools are not about partitioning privilege. I mean when you read about pandemic pods in the New York media, you know, during the shutdowns, there was a real cause for concern. Are these things any good? Are they equitable? Are they what they are intended to be? Where we're really seeing as this movement takes hold and, and grows, that we're looking for kids that were not thriving in their prior schooling setting and the population in microschools and the very, you know, the, the beautiful diversification of the kinds of models that we're seeing in microschooling really gives every kid an opportunity to thrive. And the examples that you gave are some of my favorites.

Michael Horn

Well, so stand that, because I actually didn't realize that or I didn't pick it up from the report, which is that some of the trends might be different in the blue and purple states compared to the red. And I guess the reason I'd love you to just spin that out a little bit more is the red states tend to be where the education savings accounts have passed for the most part. Right. And we know that very progressive families actually take advantage of those and love them. So it's not really a political issue. But in terms of where the laws are and enabling some public funds to support microschooling, it's more in the red states, it seems to me. So how are the trends different? And I don't even know.

Would be different in terms of who they're enrolling or scope of the schools. What does that look like? That's different.

Challenges in ESA States

Don Soifer

Yeah. So first I should clarify that just because a state has an ESA doesn't mean that microschools are able to participate or that families can choose microschools. The details of policies matter. And a lot of the time those details get decided at the 11th hour as part of a compromise. And let's face it, school choice programs in this country and the broader schools of choice experience are much more traditional and larger. And the programs are really written for those schools because those are the largest stakeholders who are at the table when these conversations are happening. So when we look particularly at microschool trends in ESA states where families can choose microschools to participate, usually one of the hurdles, one of the major hurdles is accreditation. Like in Iowa, which has an ESA program.

But the limit on the available accreditation bodies is such that it's very difficult for, you know, an innovative small learning environment. Maybe something that's particularly innovative, maybe something that's a truly child centered learning model that would deny that they even have a curriculum. It's just too much of a challenge to get that approved for accreditation in Iowa. And there are good people working on that and they're making some progress and that's great. But when you look at the states, Arizona, Florida, Tennessee, to a, to a small and growing degree, what are the trends that are any different? I think that, Arkansas, I think that in a sense, a lot, some of those are going to be predictable. If a microschool or any entity is required to take the state standardized test to participate then that's a factor.

And we see that in ESA states microschools are more likely to have maybe more standardized curricula or the structure of the microschool is going will include more norm or criterion referenced assessments than other states. I will point out though that we have plenty of microschools that we heard from in the ESA states that do not choose to participate in the ESA program for various reasons, but including that the hoops that they felt like they would need to jump through for compliance with the program's requirements were just not something that they wanted to do and that they were able to serve the, you know, the communities that they wanted to serve without being part of the ESA program. So that's part of it too. But we do see trends that a lot of them are quite similar. Right. And we need to also accept that, let's face it, the, the cultural fabric of not every community is the same. And you don't need me to remind you that, you know, the culture of a community in Maricopa county in Arizona is probably different than what we're going to find in Fort Myers beach or the Gulf coast of Florida. Right, because Floridians, right, or Arizonans, just different folks.

And microschools really like nothing meaningful in education as you know, well, happens in a vacuum. And microschooling sectors evolve really in response to two major drivers, the local demand and interest in their community and also the frameworks in which they need to operate in their state. And those I think really explain the major differences we see, you know, along with many similarities in the trends in microschools in ESA states versus other states.

Michael Horn

That's interesting. So let's move to accreditation. That was something that was on my mind to ask. It seems like most of the schools in the sample are not accredited today, but interestingly enough, most of them would be interested in microschool friendly. And that's an important qualifier, microschool friendly accreditation. Why is that? Like, what's the underlying motivation for why they want the accreditation? Is it because they could, you know, get some of those ESA dollars if that's state requirement? And so they see the writing on the wall. It does seem like there's also a trend of more recent ESA states writing in these accreditation requirements or is it something else entirely?

Accreditation: Compliance and Value

Don Soifer

So microschool leaders tell us that they're interested in accreditation for various reasons and some of these are compliance with, you know, again, to be eligible for the ESA program interstate, it might be required. So, that is part of it for sure. But there are other reasons that leaders who, you know, most of the time, we know that microschool leaders are experienced educators in other sectors, most commonly licensed public school educators. So they may see value in an accreditation process that can add value, add to their program that they can learn from in this complicated world where, you know, families have dual custody and you might have one parent that's very interested in your microschool, but they have to sell it to other folks. So something that's convincing, that shows it's a valid third party accreditation is approval. A good housekeeping seal of approval is a value. And in other states we have, you know, regulatory pressure is such that Mississippi is a good example of a state that the Department of Children and Services that oversees child care programs tells you that they will not hassle you if you can show accreditation as an elementary or secondary school. And companies like, frankly, Google for Education is one that will only make their tools available to an accredited microschool, which is something that hopefully the market is going to fix.

But these are all sort of different reasons than just regulatory compliance.

Michael Horn

That's crazy. I didn't know that.

So Google literally, it's like a requirement because they want to give these tools away for free to schools and they're like, so if you're accredited, we know you're a school. Is that like the sort of simple minded idea?

Don Soifer

You know, and I don't think it's, it's a slight deliberately to, to microschooling. They just need to know who it is that they're working with.

Michael Horn

An easy way to just sort of check that box.

Don Soifer

I guess that's right. I mean, in so many places people don't want to get in the business of deciding if an entity is any good or not, so they just make a natural deferral to accreditation because it's sort of been the gatekeeper standard in this country for factory education for a long time.

Michael Horn

Interesting. All right, so I want to talk business model next for what you're learning around microschools. Median tuition, as I understand it from the report, is $6,500 in currently operating microschools. The average of the mean cost is about $8,100. These seem pretty affordable, Don. They're priced around the level of ESAs in many cases also. But I'm just sort of curious as like, is that a coincidence? Is it strategic? It does seem from your survey data though that I'll point out that a lot of folks are actually still paying for these schools out of pocket and not using ESA dollars. So, help us understand pricing and how maybe it is or isn't changing from past instantiations of the survey.

Don Soifer

Yeah, so obviously microschool founders want to have their seats full. And so many microschool founders are highly interested in serving the kids who need it the most. So I really don't know if I could name a single microschool that charges full freight of tuition to every single family that they serve. Most microschools are still on mostly a tuition based model. And again, we're starting to see some innovation. I mean our own microschool was a public private partnership where we got taxpayer dollars from a city's appropriation, you know, and operated in a library and rec centers that have government funding that can bring new resources into a microschool. And sometimes YMCAs and boys and girls clubs and community nonprofits will be partners in the microschool so that there are resources that are available that can help the founder not have to rely exclusively on families tuition because they don't want to be in the business of, you know, partitioning out privilege. They want to give these opportunities as broadly as, as they can.

But on the other hand, you know, microschools, I would say are in terms of the productivity of the sectors, the way that they are measured. Public education in this country has a relatively low rate of productivity, you know, which includes both how much you spend and how much you achieve by your own metrics where microschools tend to spend a lot less. You're right. The median cost to educate one child in a microschool is $6,500. And you know, there's so much that goes into that. Right. If you have more kids in your microschool in May than you did in September, the number of kids goes into the denominator. And it's hard to necessarily always track, but we always encourage microschools to keep track of that particular number.

Some microschools will not require everybody to be on a full time schedule. That some microschools, especially if you're serving families that follow the homeschool requirements in your state. And again, most of those, many of those families are not going to be traditional homeschool families. They're going to come from much more traditional learning settings like public, you know, district operated schools. But if you can give families those flexibilities that can, you know, then your tuition can be prorated. And we've seen, you know, a kid coming two days a week and the parent get renting an apartment closer to the microschool and what they save on gas lets them afford a third day a week in the microschool. That's not atypical for what's happening. So again it's a response to what's in the community, what's available in the community, what the resources are and you know, and being scrappy on both sides of the financial ledger so that this can be a good viable product that meets families needs but that's also affordable to the families is one of the ways we're seeing the sector evolve.

Sustainability Concerns

Michael Horn

I think for sure it's interesting and it's some, it touches on something I've long been concerned about as you know, which is the sustainability of these models. Like you know, will microschool be there in five, 10 years? And, and to be clear, some folks have, you know, have told me that for that to really happen we actually need to get certain schools up to maybe 50, 55 kids for it to really be sustainable. And it, and on that though, it seems like you have, you know, interesting data around founders taking salaries, that a quarter are not actually taking salaries but the average even counting for that is around $50,000. I'm curious though, and I don't know if you've done this analysis but if like you take out the centers serving homeschoolers from the data set, like you exclude that, does that change what you see at all? And, and the reason I ask like if I'm a center serving homeschoolers for some of them, my bias, and you could tell me I'm wrong, but is like sustainability over more than five years is actually not the goal like it, you know, they just maybe wanted to do it for a few years, maybe their own kids, personal mission, whatever and then they're going to like keep on moving. But maybe there's other schools that feel, you know, microschools that feel more like we're trying to create something sustainable here for the longer run. And my guess is that the founder's behavior might look different there in terms of salary - do I take it? Dollar amount, maybe number of kids they even serve and stuff like that. Do you see any difference along those lines?

Don Soifer

Yeah, I mean it's such a panoramic scope of things that come into play here. For sure you're right. More than a quarter of microschool founders don't take a tuition. It's very common in microschooling. More than between a third and a half of microschoolers, microschool leaders have kids of their own in their microschool and that's part of it too. If you look at microschooling as literally take moving schooling out of, you know, the, out of an industry that teaches in buildings that are on average 50 years old in this country and cost $50 million and what, what a, you know, as you, you know, you sort of mentioned, I was a charter school authorizer in some of the most high performing cities in the country. And there's something that you see in that sector I always refer to as the charter school half life phenomenon, where seven years in, if your founding families have moved on and if your founding leader has moved on, is that entity really the same quality as it was when it first started? In microschooling, we give a stump talk that says dynamism is the new sustainability, that if you're running a microschool and you do it for five years and your kids have moved on and are older now, and you've served kids and given them great options for five years, and microschool leaders are quite responsible in the way that if they were to close or move or start a new microschool or maybe they'll, you know, whatever it is that they do, get on with their, with their lives, then they're going to, you know, work with other microschools in their area to ensure that those kids have a trajectory that they can continue. But I think that we're seeing a model that dynamism and the opening and closing and maybe a microschool leader goes on to start a new microschool.

That's high school ages, their own kids get older or whatever reason, they get on with their lives. I think the human capital of this movement is coming from a more dynamic place than it is in the factory school model that evolved in the 1950s, where it's just a different kind of sustainability as a sector than we see in traditional public schooling.

Michael Horn

Gotcha. Okay, well, so then, last question as we wrap up here because, and again, folks should check out the report. There's a lot in there. And staying on this funding question, because a lot of schools in the report said that their biggest pain point is funding. And I guess I'm just curious, like, as you think about the biggest barrier or, or challenge for supply, the supply side of this, of, of this world, is it like funding to start up the school? Is it funding for ongoing operations? Like, what do they mean when they say the biggest pain point is funding? And how should we be thinking about solving that?

Don Soifer

Yeah, so it is both capital and operating revenue, and about a third of the microschools that we talked to in the study are pre launch microschools. So if you look at the sizes that we're talking about, I think on average we find it takes between 17 and $25,000 in startup costs to launch an independent microschool of about the average size that we see. So who can do that? Right. People can borrow it from family and friends, which is a self selecting group. We see experienced educators liquidating portions of the 401k and pay themselves back in year three. But we've seen some really interesting programs. I think what Building Hope and Stand Together are just standing up as a revolving loan fund specifically for microschools. I think that's going to really help if we can see that proliferate. Different versions of partnerships and seeing employers or community nonprofits getting involved because you know, occupancy costs, facilities are the single biggest ticket item in your microschool.

Sector Growth Factors

Don Soifer

So as we as, as these, you know, as, as interest grows, as the sector gets more momentum, I think we're going to see new vehicles take place that can sort of help with that. And once we solve the access to startup capital or solve it to some degree, as, you know, as school choice programs proliferate, that's a thing that helps too. Philanthropy is broadly starting to get more comfortable with microschooling and the better, you know, and this is the golden age of digital content. And some of the really cool AI models are quite pricey right now. Maybe one of the very best is a program operated by a fantastic set of microschools in the Austin area that can cost $10,000 a kid, which is out of the price range for most of the microschools in our sector. But I think the market will take care of that. So I think we are seeing a sector that is growing in response to a lot of different factors and the more growth we see in the sector, I think that a lot of these things are going to find solutions that are on their own or handed to them by an evolving marketplace.

Michael Horn

Well, you've given us a really cool snapshot, Don, of a dynamic market, as you said, dynamic sector characterized by dynamism. And you're part of that. So just huge. Thanks for joining us. And for all of you tuning in, check out the National Microschooling Center. Keep an eye out for the analysis reports that they're doing. If you're interested in getting involved in the sector, they've got great resources to help founders, to help operators, really not just like navigate the early innings, but navigate it all through the life cycle of a microschool.

So, Don, keep up the great work. Really, really appreciate you and thank you for joining me.

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