"The New Business of Education"-Standardized Tests
Monday, February 11, 2008SUSIE GHARIB: Education spending now accounts for more of the nation's gross domestic product than any other service sector except healthcare. The No Child Left Behind law is one reason spending on education has increased dramatically. It requires frequent testing to measure student progress. So tonight we begin a series called "The New Business of Education." Suzanne Pratt looks at how the law has given a big boost to firms involved in standardized tests.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: For most U.S. schools, frequent test-taking is a way of life. Changing demographics are partly responsible. As more students seek higher education, the need to assess their progress grows. But perhaps an even bigger driver is the government's push for accountability in public education. That led to the passage of the No Child Left Behind law six years ago. President Bush sees the landmark legislation as one of his most important accomplishments.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Members of Congress, the No Child Left Behind Act is a bipartisan achievement. It is succeeding. And we owe it to America's children, their parents and their teachers to strengthen this good law.
PRATT: NCLB mandates annual state testing of public school children in math and reading beginning in third grade and continuing in high school. Some science testing is being added this year. Individual states, however, are permitted to customize tests and choose their own suppliers. Adam Newman of the research firm Outsell says the NCLB requirements plus other standardized tests, mean big business for companies that design, score and supply the materials.
ADAM NEWMAN, VP & SERVICE DIRECTOR, OUTSELL: The testing business this year is about a $2.6 billion business in the United States and that focuses on K-12 testing. And that's had fairly strong, high single digit growth to low double digit growth over the past several years since the passage of NCLB.
PRATT: Outsell says NCLB tests account for about a third of the overall testing business. The major players in the business include McGraw-Hill's CTB division, Pearson and Houghton Mifflin's Riverside unit. Recently, Pearson bought another player, Harcourt Assessment. All three companies declined to discuss their testing business with us. Because states are spending more money on testing, also known as assessment, more companies are getting in on the action, including Educational Testing Service. Non-profit ETS is best known as the publisher of the SAT college entrance exam, but it also holds NCLB contracts with California and New Jersey. And ETS' CEO Kurt Landgraf believes more contracts may be on the way.
KURT LANDGRAF, PRES. & CEO, EDUCATIONAL TESTING SERVICES: I think more and more states are recognizing that due to the high risk aspect and the accountability nature of these assessments, they have got to go for the highest quality assessment that they can bring in.
PRATT: Nevertheless, Landgraf and others say the big money is not in testing contracts, but in so-called wraparounds. Those are text books, teaching manuals and practice exams that schools buy to help students prepare for the mandated tests. Columbia University Professor Hank Levin explains winning a state-testing contract opens the door to more lucrative test-prep sales.
HENRY LEVIN, PROFESSOR, TEACHER'S COLLEGE, COLUMBIA UNIV.: If you use company X and company X has one of the major texts in that area, that text will be aligned to the test that the company is providing as well. And that's not a secret; everyone knows that.
PRATT: Meanwhile, other firms are taking advantage of increased demand for test prep services. New York based Kaplan, which has its roots in readying kids for college and graduate school entrance exams, is the world's largest test prep company. Kaplan also offers a variety of other test-related and educational services and its growth has been phenomenal. So phenomenal that CEO Jonathan Grayer says Kaplan is now the largest source of revenue for its parent, the "Washington Post."
JONATHAN GRAYER, CEO, KAPLAN: Kaplan was a $70 million company in 1991 and last year it had $2 billion in sales on the back of testing growth of all kinds. That trend is continuing.
PRATT: Most experts are confident the testing and test-prep business will continue to grow. That's in part because No Child Left Behind is expected to be renewed, but also because our society is becoming more competitive. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
