College Admissions Testing: The Real Beneficiaries

Status: 
Archived
Subject: 
K-12 Testing

The major firms in the U.S. K-12 testing industry are all for-profit companies. But the financial structure of the primary sponsors of college and graduate school admissions tests is superficially different. Companies such as the Educational Testing Service (ETS), the College Entrance Examination Board (College Board), and ACT (formerly American College Testing) are all set up as non-profit, tax exempt entities, allegedly because of their primarily educational missions.

 

However, a review of the informational tax returns of ETS, the College Board and ACT (public documents for exempt organizations under federal law) indicates that it is hard to tell the difference between the supposed “non profits” and their for-profit cousins. The companies all have substantial end-of-year surpluses, top heavy management, and very well paid executives.

 

At the College Board, sponsor of the SAT series of exams, the Advanced Placement (AP) tests and other products for the high school to college transition, revenue for the fiscal year ending June 30, 2000 was more than $298 million. Only $1.2 million of that total came from membership fees from the institutions whose admissions programs supposedly benefit from the testing programs; $291 million was in “program service revenue,” largely fees paid by test-takers’ parents. Expenses for the same period tallied $276 million, $168 million of which was passed on to ETS, which manufactures most of the Board-sponsored exams. Another $4.7 million was invested in collegeboard.com, a clearly for-profit, parallel business designed to sell coaching and other test-related products. Overall, the Board added $22 million to its net assets, driving its fund balance to just under $116 million.

 

College Board leaders were amply rewarded from this rich revenue stream. President Gaston Caperton, the former West Virginia politician whose fixation on promoting collegeboard.com has been condemned as “commercialism” by many educators, received $350,000 in salary for the year, with additional benefits of close to $54,000. At least fifteen College Board Vice Presidents and program directors reported total annual compensation in excess of $125,000.

 

If anything, financial rewards were even greater at ETS, maker of the SAT and AP as well as many graduate school admissions tests and the federal government’s National Assessment of Educational Progress. ETS revenues for the fiscal year ending June 30, 2000 totaled more than half a billion dollars: $514 million to be precise. Expenses were $485 million, leaving nearly $29 million in “un-profits.” ETS also is the sole owner of the Chauncey Group, a spin-off, for-profit firm that took in $4.4 million in the same period, largely for designing and administering occupational licensing exams.

 

In her final year at ETS, President and Chief Executive Officer Nancy Cole was paid $499,898, with additional benefits of $66,875. The pay of new ETS President Kurt Landgraf, a former international drug marketing executive (see Examiner, Summer 2000), was not reported because he did not begin work until the next fiscal year.

 

Sixteen ETS Vice Presidents and other corporate officers had total compensation of more than $200,000 with several topping the $300,000/year level. Even Trustees of the ETS Board shared in the largesse: several received more than $30,000 for attending a few meetings.

 

ACT, the major competitor to ETS and the College Board for university admissions exams, has long been “number two” in the industry. But ACT and its executives hardly face second class economic lives. Though the firm took in “just” $152 million in the fiscal year ending August 31, 2000, expenses were $130 million, leaving $22 million in excess revenues. ACT’s fund balance is now close to $144 million, more than its annual spending.

 

ACT President Richard Ferguson was paid $367,000, with an additional $83,309 in benefits and deferred compensation. Four ACT Vice Presidents each had annual financial packages in the neighborhood of $200,000. Each of ten ACT Trustees was paid about $15,000.

 

All these figures should give pause to educators considering the testing industry’s promotional claims about its products’ value. Despite their limited utility in the admissions process, the exams sold by the College Board, ETS and ACT certainly perform well for their companies’ bottom lines and executives’ wallets. As is the case in dealing with any other self-interested business selling products, the rule for dealing with exam-makers should be caveat emptor, “let the buyer beware.”

 

• Informational financial returns from the College Board, ETS, ACT and many other organizations tax exempt under federal law (yes, including FairTest) are available online at http://www.guidestar.org.