Are We Heading Toward a Charter School 'Bubble'?: Lessons from the Subprime Mortgage Crisis

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Mark Naison, a professor of African American Studies and History at Fordham University, has claimed that the charter school scandals are beginning to resemble the subprime mortgage crisis. Subprime mortgages were loans offered by financial institutions to persons whose financial standing was too weak to qualify for a typical mortgage at the prevailing interest rate. To protect lenders, these mortgages were issued at much higher interest rates, with foreclosure as the penalty of default.  Aggressive lending practices created a housing bubble, in which the value of residential real estate rose to artificially high, unsustainable levels.This bubble burst and home values plummeted, when subprime borrowers were unable to keep up with their mortgages. Not only did the housing bubble cause the virtual collapse of the housing industry, but it also contributed to a worldwide recession.

With respect to charter schools, Naison asserted that, similar to the subprime mortgage situation, the federal government encouraged the charter school sector to expand with little oversight. As a consequence, Naison explained that charter schools are experiencing abusive practices at a level resembling the subprime mortgage crisis. These abuses have taken on two forms: (1) mistreatment of students and teachers (e.g. the refusal to educate special needs and English Language learners); and (2) financial issues, such as embezzlement and real estate fraud.

Thisarticle explains how Mark Naison may be correct in asserting that charter schools are developing conditions that are reminiscent of the subprime mortgage crisis.