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Ex-workers claim cyber-charter operator manipulated enrollment figures

By Benjamin Herold for NewsWorks, a Notebook news partner on Jan 22, 2013 08:15 AM

Dozens of former employees claim that K12 Inc, a for-profit education company, used dubious and sometimes fraudulent tactics to mask astronomical rates of student turnover in its national network of cyber charter schools, court documents show.

K12 manages Agora Cyber Charter School, based in Wayne, Pa. The company is also involved in pending applications to open two new cybers in the state. The Pennsylvania Department of Education is expected to decide on the proposals later this month.

The former employees allege that K12-managed schools aggressively recruited children who were ill-suited for the company's model of online education. They say the schools then manipulated enrollment, attendance, and performance data to maximize tax-subsidized, per-pupil funding.

These claims by anonymous "confidential witnesses" are spelled out in court documents filed last June as part of a class-action lawsuit by the company's investors.

Allegations touch upon Agora

Many of the allegations come from people who worked for Agora, the second largest cyber charter in Pennsylvania. With more than 8,000 students, Agora enrolls roughly a quarter of the 32,000 Pennsylvania students that have opted to attend cybers, which are independently managed schools providing mostly online instruction.

In one example, a former Agora teacher said in court documents that the school continued to bill the home school district of one special education student who was absent for 140 consecutive days.

Pennsylvania requires that cyber charter students who miss 10 straight days be reported as withdrawn.

"What Agora does is keep the kid in inactive limbo and keep billing," said the anonymous former teacher in court documents.

The class action suit against K12, Inc. and its executives was filed last January, shortly after a critical article about the company appeared in the New York Times. The investors allege that the company committed securities fraud when senior officials, including CEO Ronald J. Packard, "concealed from the market" information about high rates of student withdrawal and poor academic performance.

"The core omission behind the Defendants' fraudulent success story was that K12 students were dropping out at staggering rates," reads the complaint.

An amended version of the complaint filed last June contains the allegations by the company's former employees.

The U.S. District Court in the Eastern District of Virginia has denied a request from K12 to dismiss the case.

A trial could take place this spring.

Jeff Kwitowski, K12's senior vice president of public affairs, said the company won't respond to every claim contained in the litigation, but is "vigorously defending" itself against the investor claims.

High rates of 'churn'

Based in Herndon, Va., K12 is the nation's largest for-profit operator of online schools.

The company's 59 full-time schools enroll more than 100,000 students in 29 states.

The vast majority of the company's $522 million in 2011 revenues came from "turnkey" management contracts with those virtual public charter schools.

In Pennsylvania, that arrangement involves a nonprofit board of directors holding the legal responsibility for the charter school. The nonprofit then contracts with K12 to provide management services ranging from providing curriculum to hiring school personnel.

K12's revenues vary according to the enrollment of the schools it manages. In Pennsylvania, cyber schools bill each of their student's home districts for the full per-pupil amount that would have otherwise been spent to educate that child.

That averages out to just over $11,000 per student, making Pennsylvania one of the most lucrative states in the nation for cybers to operate.

At the beginning of the 2010-11 school year, the K12-managed Agora Cyber Charter enrolled 5,353 students.

By the end of that year, the school's enrollment had increased to 6,475.

The overall increase masked a high "churn rate." Almost 2,400 students withdrew from Agora during the school year, but were replaced by newly recruited students.

Almost 2,700 students dropped out of Agora during the 2009-10 school year.

At the Ohio Virtual Academy, one of K12's other signature schools, the churn rate in 2009-10 was close to 50 percent.

Some of the turnover is likely due to the non-traditional nature of cybers, which often enroll students who have moved between states, are homebound due to illness or injury, or who have other temporary changes in their education plans.

The student withdrawal data is publicly available in annual reports filed by the cybers with their state departments of education.

In their lawsuit, however, the K12 investors contend that the company did not disclose the churn rates during conference calls with investors and in documents filed by the company. As a result, they say, the company's stock was traded at an artificially high price.

A vicious cycle?

According to anonymous former employees, the churn at Agora and the company's other cybers was part of a self-perpetuating cycle.

To increase revenues, the suit alleges, the company aggressively recruited as many students as possible, including some who weren't prepared to succeed in K12's full-time online schools.

When students struggled, the anonymous former staffers claim, company officials told teachers to keep the students on the schools' rolls by manipulating attendance data and inflating students' grades.

When students continued to drop out in considerable numbers, the complaint reads, K12 officials exerted pressure to enroll more students, even if they were less well-prepared for the company's online education model.

"It was as if you were trying to stop the bleeding but were still inflicting wounds at the same time," said a former market research manager at the company, identified in the complaint as "Confidential Witness 5."

The suit also cites former employees who described the company's "high-pressure" approach to student recruitment. Inside call centers, they said, "enrollment consultants" contacted parents from a list of sales leads provided each day and were awarded commissions and perks for hitting their "enrollment quotas."

The former employees also alleged that K12 aggressively "targeted inner-city and at-risk populations" even though a senior company official acknowledged that "the K12 curriculum wasn't built for 'inner-city kids.'"

The motive, according to the lawsuit, was "higher potential profit," mostly because the hard-to-serve students were more likely be chronically truant and would thus use fewer of the company's resources.

Kwitowski of K12 defended the company's recruitment practices.

"If a parent is interested in enrolling and they make an outreach to the school, the school is going to respond to them, just like any other public school district," said Kwitowksi.

"Parents determine whether it's the right fit for their child."

Attendance and performance data questioned

Former employees of K12 and its cyber charters also alleged that company and school officials encouraged manipulation of attendance and performance data.

A former teacher at K12's California Virtual Academy, for example, reported that staff at the school were directed to "contact parents prior to each attendance count day by the state and instruct the parents to retroactively log students' attendance for any missed days."

The same teacher also stated that his superiors routinely instructed him to pass students who should have failed.

A number of anonymous former Agora employees made similar complaints.

One confidential witness maintained that no Agora students could be withdrawn from the school without the approval of head of school Sharon Williams, a K12 employee.

The former teacher reported that "during the school year, Williams kept students enrolled who were not attending classes, but that immediately before year-end state testing Williams withdrew students that would have negatively impacted the school's academic performance."

Kwitowski said K12 schools "follow all the state regulations and policies."

"With online schools, it's about mastery of the content," he said. "[Attendance] is not defined in 40-minute class time periods, as it is in traditional schools."

Still growing

K12's motivation for manipulating the numbers, according to the suit, was to keep billing traditional public school districts for as many students as possible.

According to the lawsuit, Packard, the K12 CEO, repeatedly described growing student enrollments as the company's "manifest destiny."

In Philadelphia, almost 5,000 Philadelphia students were enrolled in state cybers last year, resulting in almost $50 million in per-pupil payments from the District. District officials could not specify how much of that went to schools affiliated with K12.

As part of Philadelphia Superintendent William Hite's recently unveiled "Action Plan v1.0,"  he said the District would create its own virtual school option to lure students back from cyber charters.

If all eight proposed cybers under consideration in Pennsylvania are approved, they project to enroll as many as 10,000 students over the next five years, receiving a total of $350 million in taxpayer money along the way.

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Comments (29)

Submitted by Ms.Cheng (not verified) on January 22, 2013 9:20 am
The best solution would be to pressure your State Rep to get the State Legislature to act on the Auditor General's suggestion that cyber charters not be funded using the same formula : http://www.auditorgen.state.pa.us/department/press/wagnersaysfixingpa%E2... If the PSD is able to "rightsize" successfully, becoming more efficient in the funding it gets per child, this will also decrease the allotment that all charters, including cyber ones, get from taxpayers.
Submitted by Anonymous (not verified) on January 22, 2013 4:40 pm
Do we know whether the SDP virtual school would be run by SDP or by an outside vendor (such as k12, inc.)? I would not be surprised if the plan were to outsource the virtual SDP.
Submitted by Anonymous (not verified) on January 22, 2013 4:57 pm
The whole point is to save money and avoid payments to outside vendors. So maybe!
Submitted by David Lapp (not verified) on January 22, 2013 4:50 pm
This is a major scandal and I'm guessing it is not limited to Agora. Pennsylvania needs a moratorium on cyber charter expansion. See http://www.elc-pa.org/cybercharter_alert.html Great work Notebook and Herold.
Submitted by Anonymous (not verified) on January 22, 2013 6:22 pm
They should also be investigating the ridiculously high rate of staff turnover at Agora.
Submitted by Anonymous (not verified) on January 22, 2013 7:22 pm
Interesting article but I think you should probably check your facts and maybe your sources. For example, you cant withdraw students right before state-testing in the Spring in an effort to have them not count towards your AYP status. For the PSSA's, students on your official school roster in October, even if they leave your school in November, count towards your results.
Submitted by Anonymous (not verified) on January 22, 2013 7:45 pm
For the individual sharing the funding change legislation. Do you believe that the current model, where school districts of students who attend charter schools still receive a portion of the per pupil cost (tax money) of that student with having no educational impact on them, should stay the same?
Submitted by Ms.Cheng (not verified) on January 23, 2013 9:20 am
Hi, I don't know if you were referring to my comment, but I would like to reply. I'm not sure of the accuracy of the allegation that the PSD is being reimbursed for students that have transferred to charters. Do you have a source with reliable substantiation? I had thought this might be part of the "deal" that Mayor Street obtained from the State in return for dropping the City's discrimination lawsuit years ago, but I have not been able to confirm this. My guess is that because the funding is based on an average enrollment/per student expenditure of the prior year of the resident district, the charters stand to gain from a falling enrollment at this resident district, in this case PSD, because the per student expenditure tends to go up when this happens. What State Auditor General Jack Wagner recommended was that charters, and most especially cyber charters be funded more closely to what it i, I don't know if you meant my post, but I would like to reply. I'm not sure of the accuracy of the charter school allegation of the PSD being reimbursed for students that are no longer enrolled there. Do you have a source that includes substantiation of this? actually costs them to provide their sevices. Although non instructional costs are deducted, it would appear that the gross inefficiencies of the resident districts has resulted in surpluses for the charters. again most especially the cyber charters, and the attraction of private management companies whose profits are siphoned unjustly from of taxpayers. You can find how charter schools are reimbursed on the State's website: http://www.portal.state.pa.us/portal/server.pt/community/charter_school_... If you link to Section 1725-A (PDF) of the Pennsylvania Public School Code this is what it says: "(2) For non-special education students, the charter school shall receive for each student enrolled no less than the budgeted total expenditure per average daily membership of the prior school year, as defined in section 2501(20), minus the budgeted expenditures of the district of residence for nonpublic school programs; adult education programs; community/junior college programs; student transportation services; for special education programs; facilities acquisition, construction and improvement services; and other financing uses, including debt service and fund transfers as provided in the Manual of Accounting and Related Financial Procedures for Pennsylvania School Systems established by the department. This amount shall be paid by the district of residence of each student. (3) For special education students, the charter school shall receive for each student enrolled the same funding as for each non-special education student as provided in clause (2), plus an additional amount determined by dividing the district of residence’s total special education expenditure by the product of multiplying the combined percentage of section 2509.5(k) times the district of residence’s total average daily membership for the prior school year. This amount shall be paid by the district of residence of each student."
Submitted by Ms.Cheng (not verified) on January 23, 2013 10:35 am
Sorry about the mixed up repeated type. Not sure how that happened (probably when I was trying to "save" in case I lost what I had written). Hope you can follow the sentences o.k.
Submitted by Anonymous (not verified) on January 23, 2013 12:45 pm
"Although non instructional costs are deducted, it would appear that the gross inefficiencies of the resident districts has resulted in surpluses for the charters." This may be a contributor to the charter surpluses, but I can tell you that several (not all) charter schools also skimp on PD (in at least three examples, providing NONE to their teachers wile the CEOs made over 100K) and pay teachers less than SDP for what can be longer hours. If you search newspaper archives, you will also find that a couple of charter schools have not kept up payments to PSERS in the past. Long story short, it is not cheap to provide a quality education. Many charters that invest in quality instruction also have to raise supplimental funds (as do some district schools). There is more than one reason for charter surpluses (where they exist), and not all charters have surpluses.
Submitted by Ms.Cheng (not verified) on January 23, 2013 3:00 pm
I understand what you are saying, which is what is being spent now by the PSD, should not be considered too much per child. The real/first problem we have then, is that spending is not reaching the children, whether in the PSD or the charters, not the amount of the spending. What SAG Wagner in effect is suggesting is a cap on total reimbursement. This will not address the poor management and corruption. Better that it should be a cap on management expenditures/fees. Perhaps we could extend this to the resident district as well?
Submitted by Ms.Cheng (not verified) on January 23, 2013 3:42 pm
Should've written "A cap on per child reimbursement pegged to a national norm/average" rather than "cap on total reimbursement".
Submitted by Ms.Cheng (not verified) on January 24, 2013 9:23 am
I need to add that fraud and corruption are subtle and sometimes well hidden. For example, a lot of the PSD's PD is done "in house" with no critical evaluation of the quality of the same. Schools that were in "Correctional Status" and whose children qualified for tutoring services were "encouraged" to look for these "in house" as well. Then we have administrative positions such as "Instructional Reform Facilitators" (which are tasked with "in house" PD btw) which cost the school over $90k in Title I funds. Each may seem pretty "innocent" and "harmless" by themselves, but in the aggregate do cause a lot of harm. When a cyber charter has enough money to almost singlehandedly rebuild a city... well, was this where the taxpayer thought his/her money was going to when it was taken from his/her paycheck? The value of education is uncontested. Unfortunately those who are doing the real work, are not getting fairly compensated for what they do. Many of us who volunteer (and in my case have homeschooled) have traded having a "career" outside of the home in order to do so. If we really compensate those who do the real work, it would require a significant adjustment to the system we currently have. An adjustment that would include paying the private "nonsectarian" schools and the homeschoolers the per child subsidy as well. You have teachers who exhort us to consider the "welfare of all" as they defend their benefits and pay, but likely would not support paying all the volunteers or parents that do substantial work also.
Submitted by Education Grad Student (not verified) on January 22, 2013 9:34 pm
K12 is a complete sham, and yet I still see commercials on TV for Agora Cyber CS. If for-profit companies can't run brick and morter charter schools in Philadelphia, Philadelphia should apply the same logic to cyber charter schools and not allow their students to attend a for-profit cyber charter. The per-pupil payment going to cyber charters needs adjustment, but there also needs to be discussion about the validity of cyber charters period. Where is the social interaction? Where are the face-to-face personal relationships? Where is the community involvement?
Submitted by Ms.Cheng (not verified) on January 23, 2013 9:11 am
EGS, K12 is not a sham. I enrolled my younger in Agora Cyber for a year, and the curriculum was much better than what he was getting in our neighborhood school. In addition, I was loaned a computer w/printer and a microscope, reimbursed for internet connection (about $20 or $30/month), sent workbooks and art materials (both which I was allowed to keep). I tried this option because it seemed to be a "halfway" solution to the homeschooling that had been interrupted in our family because of my husband's illness. My son's vocabulary increased substantially, and he went from the low end of "proficient" to the mid end of "advanced" that year. The fact that better curricula was not the answer for the other kids enrolled, who apparently did not improve sufficiently, only stresses the importance of getting Title I money to the underprivileged, at risk kids, both in Early Ed, and direct enrichment experiences. Of course I was making sacrifices so that my kids made it to the YMCA, to the local Rec gymnastics classes, and to the local music school. The reason why cyber schools, are so much "cheaper"/so profitable is that they use the parent/caregiver's time, which is not reimbursed. The socialization factor: In many neighborhoods, there are parents who would prefer their kids who do not fit peer group stereotypes, get beat up or bullied. In the end I returned my child for his last year at the elementary school because he did miss his friends there. We had to endure some tears because of bullying and theft, but he learned about the cruel side of human nature after he had learned to communicate to me, not before. The PSD, must (but I doubt they will) evaluate this (the cyber) option in the form of "blended" instruction, because this may allow them to save many of the schools that are currently on the closure list. If you can share teachers, and (more importantly) administrators, you can keep the small class sizes, and using the current funding level, have enough of a surplus to maintain the aging, but much treasured buildings.
Submitted by Ms.Cheng (not verified) on January 23, 2013 9:00 am
of course it should state that "there are parents who would prefer their kids... NOT get beat up or bullied."
Submitted by ConcernedRoxParent (not verified) on January 23, 2013 9:21 am
Shocked! I am just shocked *rolling eyes*
Submitted by Anonymous (not verified) on February 6, 2013 2:59 pm
Nothing here that isn't already an issue in brick-and-mortar schools. There is grade inflation, fudging on attendance, and overpaid tenured staff and administrators in the traditional public sector as well.
Submitted by Greg C (not verified) on February 26, 2013 5:07 pm
I just wanted to share a story about my experience with Agora Charter School that has me with drawing my son after just 4 weeks. First off I am embarrassed that I did not find the multitude of negative press by parents and students of this mess of an experiment! First I will start by telling you how impressed I was with K-12 and Agora when they were in the recruiting us phase of the process. Not so once the dotted line was signed. The classes are fine for the most part but forget about getting anyone on the phone other then the family coach who has reminded me every time I have called that she is the wrong person for my problem. The horror story began this morning when my son questioned the content of his history text book. He had complained a few times since he started the class that it seemed to be based in religious beliefs rather than history based in facts. I had dismissed his concerns until I read the chapter on Jesus Christ which referred to Jesus in the factual sense as if it were a provable fact that Jesus “Said” “Did” ETC. It was so clearly written with a Christian perspective that I had to look the text book up and I was flabbergasted when it came up as a text book at more than one Christian book store online. When I finally got a hold of the family coach she kept insisting that I should speak with the teacher and refused to give me any number to someone in charge of the curriculum. To make matters worse when I asked for the number to the corporate office she told me she would get back to me within 24 hours! In the time it took for that exchange my wife pulled it up on Google instantly. How can a person not know the number to the company they represent? I then called the corporate office and left a message with a Ms. Robin Angle who did call me back and was polite she said she had no recollection of any Christian books being used in the curriculum. Once I explained about the content of the book and its listings at Christian book stores, online along with some quotes from the book itself, she tried to act like it could have been some oversight because as she put it “It’s a really big task running a school”. I could go on for pages with the fiasco I just went through today but to sum it up I am outraged that a public school that receives tax payer dollars is teaching bible stories as if they were actual provable facts in history rather than a representation of the beliefs of a world religion. At the end of my conversation with Robin I made it clear that I was not happy with any of the answers I had received or the horrible customer service and intended to bring the matter to my local school district, newspaper reporters who have been reporting on Agora and anyone else that would listen. At this point I was asked to please refrain until someone at a Vice President level spoke with me. I don’t know if there is a story here or not but after the day I had with these people nothing will stop me from finding out. In the mean time we have started the process to have our son moved to the cyber school that works with our actual school district. The text book which sells at the Christian book store online is titled The Human Odyssey: Volume 1 .
Submitted by Anonymous (not verified) on March 5, 2013 10:15 pm
I agree that Agora has religious affiliation. Annually, Agora administers mandatory state PSSA test for the students. Because Agora is an online school, it does not have a building where students can come and take this test, so Agora arranges for spaces from other entities. A few years ago, Agora announced its site list from which the students could choose. Almost 50%, 14 out of 30, were churches or otherwise Christian affiliated establishments. The PDE (Pennsylvania Department of Education) was contacted, but no changes were made. The following year, 17 out of 38 location were religious. All 17 are of the same denomination, Christian. Way to separate Church from State!
Submitted by how to win back your ex (not verified) on September 1, 2013 2:41 am
Great article.
Submitted by tom-104 on March 5, 2013 10:55 pm
And a violation of the Pennsylvania Constitution: "Article III Public School Money Not Available to Sectarian Schools Section 15. No money raised for the support of the public schools of the Commonwealth shall be appropriated to or used for the support of any sectarian school." I wonder how much the churches were paid for this.
Submitted by Anonymous (not verified) on March 7, 2013 10:00 pm
This is a good info. I am not sure if the school would volunteer fiscal details. Question becomes, what PA agency has enforcement authority to oversee public schools' compliance with law. It is not PDE, they made it clear. We came across many law violations done by public schools. Unfortunately, they are well aware of the absence of oversight.
Submitted by Anonymous (not verified) on March 8, 2013 11:16 pm
I am writing to see if parents are OK with the text of the contract they have to click "agree" to when signing for Blackboard live lessons and sessions. Since public school education is a state entitlement, should we be asked to sign any contracts in exchange for access to the tax-paid school resources? It seems, every year the students are expected to sign more contracts. This year, K12 introduced a contract in exchange for setting up of the student's account. Agora’s communication states that any school work done through account other then student’s (i.e. family account) will not be recorded. [Truancy vs signing of the K12 contract]. Also, did anyone notice that after Blackboard purchased Elluminate, in order to attend a live lesson/session students must allow them to access student/family personal computer? Our computer manufacturer stated that ones an access to the computer is granted, no part of the computer would be off limits. Any information collected from personal computer is linked directly to the verified info from the student record, and, coupled with contract provisions of using info as they wish, allows for compiling and (mis)use of massive amounts of student/family information.
Submitted by Anonymous (not verified) on April 7, 2013 12:16 am
My child attends Agora Cyber School and I would not recommend a parent placing their student in this cyber school, if any. I, and the school district, where I live contacted the cyber school on COUNTLESS occassions to send my child books, but never received books to this day! Now I have a child that is failing miserably and basically there is nothing I can do about it! I tried contacting them, which the last time attempted to contact them was this past week, about placing my child in lower courses where my child could do the work. My attempts at contacting them resulting in calling the school and getting an answering machine and then no call back(s)! there are countless times where the class connect sessions do not work, but then the child is deemed absent when the website doesn't allow them access to do thier work. Just very sad!
Submitted by Anonymous (not verified) on April 9, 2013 1:35 pm
I do not know how long your child has been enrolled at this cyber school. You should pull your child out and place him or her back in your school district.
Submitted by Rudi Kingston (not verified) on April 20, 2013 11:53 am
Well enrollment systems are provides a number of beneficial points as well as it consists of several demerits also such as we can easily manipulate these systems and make certain changes in the figures. Basically an enrollment system helps to keep the records of the individuals especially these systems are being used in schools and colleges but now days we can use it for keeping employee details. https://enrollmystudent.com/
Submitted by Anonymous (not verified) on April 8, 2014 10:00 am
The K-12 program is the best thing that ever happened to my children. They were stuck, forced to attend the worst school in our area. Their education was piss poor at best and the school is falling apart. We decided to take control of our children's education and we contacted K-12. Within 4 days the UPS guy showed up at our door with boxes and boxes of brand new books,new computer, monitor etc. learning supplies, everything my kids needed for a proper education for their grade, that year. It was amazing. My kids had never had their own school book let alone a brand new one! It's amazing how much my kids learn in one week, compared to the brick and mortar school that was falling apart around. Everyone has to complain about something........Get over it. Isn't there more important things in the world to complain about?
Submitted by Anonymous (not verified) on October 8, 2014 1:14 pm

I am a mother of an extremely bright, high IQ student who had a very bad experience with the traditional schools and the way they teach.  Traditional schools do not have the time to recognize, nor the time to spend helping the advanced student (all efforts go toward the no child left behind student).   They had told me to be happy he was "normal" and that he did not test as well as someone who is advanced.  I was to accept this and be "happy."  My son cried every morning before school, always after he got off of the school bus, and then again every night before bed that he did not wish to go to school.  You see, before he started school, I had let the school know that I had tested him at a reputable institution and that they had found that he was advanced. The school  insisted on retesting him and told me he scored less on their test.   I had let them know that he has been reading since before 3 years old and was doing math at an advanced level and that I had wanted him challenged.  After meeting upon meeting between principals, his teacher, and other heads of the school, nothing was done.  My child was just left to suffer from depression because he wasn't learning anything new. Learning to him is his joy and happiness.  Before starting school, everyone would tell me, "What a happy child he is!"  After beginning Kindergarten in the traditional school for a couple of months,, he morphed into a very depressed child who cried all of the time.  I had to do something drastic and Agora was a God send.  After beginning at Agora, he has advanced a grade (I made him go through ALL of the lessons of every grade K,1,2, just at an advanced pace). His AIMS tests are off the charts, in fact he is reading at a 6th grade level according to the AIMS tests.  Also, his math scores are way above the advanced line.  Someone had mentioned that Christianity is taught at Agora; yes it is, along with other religions-if Mr. against Christianity had kept his child in, he would have soon realized this. Jesus is a part of history- a BIG part and deserves to be taught in the history curriculum.   I feel my tax money is well spent at Agora, in fact, I wish 100% would go to Agora.  My son would still be at the "traditional" school if they had the time to recognize his talents.  His advanced scores would surely have helped their funding, also - too bad.  My son is thriving now and is so very happy.  The curriculum of agora is advanced and he and I couldn't be happier about it.   Wondering why all the FORMER employees of agora are coming forward...hmmmmm???? 

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