Still widely popular, charter schools have become a major part of the nation’s educational infrastructure, expanding at a rate of about 12 percent a year. Nearly 3 million children, or about six percent of all children enrolled in public schools nationwide, currently attend charter schools.

But with states facing mounting pressure to ease regulations to allow more charter schools, and with the federal government and private industry offering millions of dollars in new charter school grants and incentives, UConn professor of educational leadership and law Preston Green III is urging policymakers to be careful.

In a recent paper that is receiving national attention, Green and three co-authors outline the many parallels they see between today’s charter school systems and the early days of the subprime mortgage crisis, where aggressive business practices and unchecked growth created a national housing ‘bubble’ that threw the country into deep recession.

The housing bubble was particularly devastating to urban African-American families, many of whom relied on subprime mortgages to purchase their first homes. Without sufficient regulatory safeguards in place to protect them, these vulnerable families would later lose their properties to foreclosure when the ‘bubble’ burst and they were unable to meet the terms of their loans.

When it comes to charter schools, Green, the John and Carla Klein Professor of Urban Education in UConn’s Neag School of Education, is concerned that, as with the subprime crisis, insufficient regulation could result in the formation of charter school “bubbles”: a concentration of poorly performing schools in urban African-American communities.

“Charter school bubbles are most likely to form in black urban communities, because those are the communities where there is the greatest anger toward traditional public schools and the wish for change,” says Green. “It is because of that anger that these communities are most at risk of making an over-commitment to charter schools, which could then lead to the bubble we reference.”

As the lead author of the paper, “Are We Heading Toward a Charter School ‘Bubble’?: Lessons from the Subprime Mortgage Crisis,” Green advances a detailed and heavily annotated argument expressing his concerns. He is joined by research co-authors from Rutgers University, Montclair State University, and the University of Wisconsin at Madison.

There should be a deliberative and thoughtful process in overseeing charter schools to make sure that the choices of parents and children are honored and, in the end, meaningful. Preston Green

The paper has sparked a national conversation. Since it first appeared online in December, the paper has been reported in journalist Jennifer Berkshire’s widely-read EduShyster blog, the Washington Post, Mother Jones, Salon, NEA Today, and a host of other online media sites, blogs, and podcasts. Critics say the paper’s comparisons are unreasonably provocative. Others support its conclusions as timely and important.

“I knew it was going to be controversial, but I felt it was something that needed to be said,” Green says. “I am very concerned with where charter schools are headed. We are in a position of repeating the mistakes that we made with subprime mortgages, where we encouraged ostensibly positive goals, but didn’t put the protections in place that are needed.”

Critics of charter schools often point to individual schools and districts where problems have surfaced. Green’s paper focuses instead on larger systemic issues. The authors point out that more than $200 million in charter school fraud, abuse, and mismanagement has been identified in 15 states. Reports of private for-profit charter school management companies declining to enroll students with special needs and disabilities, instituting aggressive disciplinary practices, charging public school districts exorbitant rent for facilities, and using high-pressure tactics to recruit students in minority neighborhoods, are additional cause for concern, Green points out in the paper.

“If we’re going to have private entities involved in public education, we need to have sufficient regulation, because without those regulations, without that oversight, there could be systemic abuse,” he says. “And because of the particular issues within urban communities, the failure of providing safeguards and regulations could result in a very negative situation.”

Multiple Authorizers, Multiple Problems

One of Green’s primary concerns is the recent push by the charter school industry for states to allow multiple independent authorizers of charter schools. Advocates argue that having multiple authorizers would make the application process more efficient, and offer more options for national providers interested in opening charter schools. But Green counters that having multiple authorizers opens the door for “authorizer hopping,” where low-performing providers could go searching for a favorable authorizer that won’t be as careful screening for quality or as demanding when it comes to accountability.

Recent federal laws, such as the Every Student Succeeds Act, encourage charter school expansion, adding another element to the charter school authorization debate. In the private sector, major entities like Netflix and the Walton Family Foundation, have pledged millions of dollars in support of charter school growth.

Traditionally, charter schools have been authorized by local public school districts. Those districts have demanded quality and accountability because they are responsible for educating all students in their community and would bear the brunt of educating students returning to their district should charter schools close. Shifting authorization to independent authorizers, Green says, means handing over that authority to an outside entity that doesn’t have a stake in the game.

“If you are going to have these private entities and use these private approaches, you cannot forget the public role in this,” he says. “Under state constitutional law, governments are supposed to provide a system of public education that ensures safeguards are in place.”

According to the Center for Education Reform, states with multiple school authorizers have nearly three and a half times as many charter schools as those authorized by local school districts. A separate study cited in the paper, this one by Stanford University’s Center for Research on Education Outcomes, found that “states with multiple authorizers experienced significantly lower growth in academic learning in their charter school students,” indicating that some charter school operators were successful in choosing the least rigorous option to provide oversight.

Charter schools already outnumber public schools in some districts. The Recovery School District in Louisiana, for example, is considered the first all-charter school district in the country. In Detroit, 14 entities that are not locally controlled have the power to open and close schools.

“What I get most concerned about is a situation where you have an all-charter school district where the authorizers, the entities that make decisions about what schools are going to come into play, are not connected with that school district,” Green says. “If you have a situation where the vast majority of decision-makers are not connected to the community, then you have a problem.”

In the paper, Green lays out his concerns clearly: “Charter school boards have the responsibility … to ensure that their schools follow all applicable laws, and that the schools spend public funds in a fiscally accountable manner. By contrast, for-profit [management entities] have the incentive to increase their revenues or cut expenses in ways that may contradict the goals of charter school boards.”

Subprime Similarities

Green compares the shift in charter school authorization to the start of the subprime crisis, where the federal government, seeking to increase homeownership for minorities and the poor, deregulated the financial industry and encouraged the distribution of subprime loans.

Traditionally, mortgage originators such as banks screened loans carefully, because they assumed all of the risk if the loan went into default. When the subprime industry emerged, banks and other mortgage originators no longer screened loans as closely, because the loans were guaranteed by the federal government and they were allowed to sell them on a secondary market, spreading out the risk. In essence, the originators of the mortgages no longer had any skin in the game.

Despite all of his concerns, Green remains a believer in the charter school concept. He insists that the paper he authored is not meant to be an attack on charter schools, but rather an exposé highlighting issues of concern.

Green believes the country right now is at “ground zero” with respect to the growth of charter school bubbles. The paper concludes with a series of recommendations for greater federal and state oversight, including more transparency in charter school approvals, improved quality assurance, and sanctions against schools that exercise low standards.

“What we are saying is that there should be a deliberative and thoughtful process in overseeing charter schools to make sure that the choices of parents and children are honored and, in the end, meaningful,” he says.

The flip side of that scenario is daunting. “If charter schools aren’t sufficiently regulated,” Green says, “we could see a proliferation of poorly monitored schools in these communities. The proliferation of these poorly regulated schools could gather such momentum that it could be a while before people start to realize there are problems, and by then, it will take some time to dismantle all that.”

Just like what happened in the subprime mortgage crisis.

The paper – “Are We Heading Toward a Charter School ‘Bubble’ ?: Lessons from the Subprime Mortgage Crisis” – is scheduled for publication in print in the University of Richmond Law Review next month.