Billions in federal aid are being employed in an effort to reverse the profound learning losses that occurred when distance education became the norm during the pandemic. In a race to catch up, school districts are increasingly focusing on assessments to discover students’ weaknesses. There is also greater recognition of the role technology can play in developing customized plans to bridge learning gaps that threaten future success in the classroom. This can accelerate the growth of digital learning companies such as PowerSchool, Instructure, and others that provide learning management systems or tools to assess and improve student performance. “The pandemic has heightened the need for personalization,” said Ian Chiu, managing director of Owl Ventures, a venture capital firm focused on the edtech market. “Assessment is the first part of this process, especially for students who have greater needs.” Serious data Much attention has been paid to recent findings from the National Assessment of Educational Progress that showed two decades of hard-earned improvements have been wiped out by the disruption of the pandemic. Tests are the gold standard for measuring the abilities of nine-year-olds in the United States. Since the 1970s, math scores have only gone up—that is, until this year. From 2020 to 2022, average math scores dropped seven points, providing evidence to back up the warnings teachers and parents were already making. The students also lost a good standing in reading. Average scores have fallen by five points over the same period — the largest drop in more than 30 years. The declines were widespread, but were most pronounced among students who were already struggling before the pandemic. Without intervention, the loss of basic skills threatens students’ progress in the higher grades. Some, feeling hopelessly underdeveloped, are likely to lose interest, and dropout rates may rise. Chronic absenteeism is a pervasive problem that continues to get worse, particularly in school districts with low-income students. Emma Dorn, chief knowledge expert at McKinsey & Co. “…Children are missing out on a great deal of schools and that undermines the ability of schools to help them. … When we think about what support is for students, comprehensive support has to be about both learning, but also about some of that mental health and overall forms of support for the child. “. The federal government has pledged billions to work to solve these problems. In March 2021, $122 billion was approved in the American Rescue Plan for Emergency Relief for Elementary and High School Act, or ESSER III. Money should be allocated or spent by 2024. Where the money goes, data service provider Burbio keeps track of where the money goes. Significant portions are earmarked for hiring and retaining teachers and other support staff, and other funds are earmarked for after-school programs or intensive tutoring. Billions go to improving facilities. This includes upgrading or adding HVAC systems, purchasing new furniture and equipment or even adding water bottling stations. But money is also pouring into technology, and this trend could accelerate over time. Roughly 70% of school districts have earmarked some funding for the technology, according to Burbio’s analysis of 5,400 ESSER III plans, representing $85 billion in spending. The plans cover areas that teach 75% of K-12 students in the United States. Technology spending can take many forms, including connectivity improvements, the purchase of devices for students, or smart boards for the classroom. In a research report earlier this year, Piper Sandler analyst Arvind Ramnani said schools have already invested in the infrastructure needed to support digital learning. He said the proportion of schools with devices per student has increased by more than 3,000 basis points to 88% since the pandemic began. “In our view, large capital allocations on digital infrastructure are a strong wind for K-12 education technology as schools are better equipped to effectively deploy digital learning solutions,” Ramnani wrote. William Blair analyst Stephen Sheldon wrote in a research note in August that investors will want “increased exposure to education technology companies operating in primary and secondary education over the next few years given the favorable funding environment and the significant need for states and school districts to offer customized education solutions.” better for students and better support for educators.” Sheldon, who rated PowerSchool superior, said the trend is a tailwind for companies in the space, and reduces the risk of macro trends like recession. As of Friday’s close, PowerSchool shares are up more than 10% since January. But the stock is down 84% from its 52-week high of $33.46 hit a year ago. A structural shift, firm CEO Hardeep Gulati told investors at the Goldman Sachs Communacopia Technology Conference Thursday that ESSER III funding is helping school districts modernize their infrastructure and providing a cushion in a “very stable” funding environment. He pointed out that the regions that seek to obtain their services for the first time or add new capabilities do not rely solely on these funds. PowerSchool increased its forecast for 2022 in August, when it announced second-quarter results. Revenue is expected to be between $630 million and $634 million, or about 13% to 14% over 2021. Gulati said he expects trends to be structural in nature — not a short-term leap from catalytic financing — and there will be more digital adoption. the future. “Education was working on the rearview mirror and we were pretty much missing out on the opportunity even to make an impact on the child because you only know how the child has been doing a year later. So our integrated solution brings that whole really real-time view of the whole child.” Dorn at McKinsey said that when dealing with learning losses, it is important that teachers understand where each student is located. She said nonprofits and private companies have done really interesting research on the building blocks in subjects like math and reading that can help students continue their learning. These core concepts provide support for understanding other material that students will need to learn later. Instead of teaching everything from kindergarten to grades, [teachers] You can focus on those few scaffolding with some adaptive instruction using products that can help you access some of the material at the grade level,” Dorn said. What is important to note is that digital tools cannot replace the role of the teacher, but they can make the teacher more Efficiency. Amira Learning, an Owl Venture portfolio company, is an example. Chiu said it helps teachers assess a student’s oral fluency when reading, which can be a time-consuming task. Children read aloud, and Amira uses artificial intelligence to assess skills and report to Instructor about students’ need for additional support and in what specific areas. Districts also need to broadly define student learning needs, said Jane Mitchell, Senior Director of Product Marketing at Instructure, known for its Canvas Learning Management System.Instruction has added analytics so that school districts can From gaining insights across schools in an area to identifying where action needs to be taken and also adding professional development tools, recognizing that there is a lot of change in the workforce.Trenton Goble said, Vice President of K12 Strategy: “The past three years have been very difficult for educators.” “It’s been tough for the officials. There has been a lot of technology adoption during that time period of Covid…so it’s important for us to make sure we’re providing the right kinds of tools.” Shares of the education sector have fallen about 9% since the beginning of January. In August, the company raised its forecast for 2022 after beating its estimates for the second quarter. Dorn said that given the provinces’ choice of sellers, there was a lot of discussion about the need for the products to provide “educational cohesion.” She also said that the products should be attractive to students, while providing evidence that the methods used are effective. “The regions need products that work,” she said. “They don’t need products that look exciting or those, you know, exciting frontends, they need products that will actually work and support students to improve learning.” Piper Sandler’s Ramnani told CNBC that he expects providers like PowerSchool to have an advantage if they already have an existing relationship with a school district. 2025 and beyond In a best-case scenario, this unprecedented funding will be closely monitored to see which efforts are most successful. Proven programs can then be supported even after stimulus funding dries up in 2025. In addition to addressing the Covid-specific learning gap, there are other opportunities in education technology. UBS recently identified education services as a long-term investment opportunity, citing as a key factor the growing number of middle-class people in emerging markets and the potential for these individuals to begin investing more in education and training for themselves and their children. Several education technology companies have been looking to expand their business outside the US, for example PowerSchool, for example, said in August that it would accelerate its international expansion over the next six to twelve months. The company targets Europe, the Middle East, Africa, Latin America and India. Meanwhile, ESSER III funds will continue to be allocated through the end of 2024. During the second-quarter earnings call, Instructure CEO Steve Daly said he was confident the funding would be a tailwind for the next two years. “In the last fiscal year that just ended in this second quarter, we haven’t seen a lot of it yet flowing in, so there’s still a lot of dry powder, if you will, over the next couple of years, we think,” Daly said.