Making Another Big Score

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Landgraf of ETS hopes to double revenues by 2005

Lisa Ngai, a senior at Ferndale High School near Bellingham, Wash., aims to be the first from her immigrant family to go to college. In the past three years she has taken the SAT I three times, the PSAT (which determines National Merit Scholars) twice, SAT II exams in math, writing and U.S. history and, for good measure, the College Board's Advanced Placement calculus exam. This year she is enrolled in three more AP classes. By the time she graduates, she will have paid nearly $500 for tests sponsored by the College Board and designed by the Educational Testing Service — hardly an unusual sum for an ambitious high school senior. "I have no choice but to spend this money," says Lisa. "I want to get into college."

The near monopoly Lisa and millions of other anxious high school students face has been solidifying for more than half a century. At first blush, one would guess the companies that create and sell all these tests — the College Board and its spin-off, the ETS — would be shaken to their square roots by the latest rebellion against SATs. In truth, they should hardly notice. Both companies rely less and less on the SAT for income each year, and while the industry is becoming more competitive, the testing business as a whole is in the midst of a boom. The standards-and-accountability movement has led states and schools to test American students more often than at any other time in history. And if President Bush has his way, states will be required to test all students in third through eighth grades — 22 million kids — every year in math and reading. That's big money for K-12 testmakers, a market currently dominated by textbook publishers — but one that ETS is poised to join.

After a rough decade of losses caused by a heavy investment in computer-based exams, ETS last year — for the first time in its history — hired a businessman, not an educator, to run the company. And looking to seize a large chunk of the pre-college testing market, it launched a for-profit subsidiary, ETS K-12 Works. ETS president Kurt Landgraf, former CEO of DuPont Pharmaceuticals, hopes to double ETS's overall revenues within five years, to more than $1 billion a year. "The future for testing is in K-12," says Landgraf. "It's the biggest initiative we have." His golden ticket may be ETS's new "e-rater," a nifty tool that can grade essay questions in under a second, using advanced artificial-intelligence technology. ETS claims the scores the e-rater spits out match those given by human graders 97% of the time. That's as accurate as a second human reader.

The company has a ready market in states looking for high-quality test designers. Today just three companies (conveniently, the three biggest school-textbook publishers) develop nearly all K-12 tests, and there is a severe shortage of psychometricians — specialists trained in educational measurement and test design. Last spring National Computer Systems (later purchased by textbook giant Pearson for $2.5 billion) mistakenly failed 7,930 Minnesota students on a basic-skills math test. Yet when Minnesota awarded its latest $3.4 million contract to develop new tests for middle and high schools, the state again turned to NCS Pearson. "I couldn't find a company with the accuracy rate that I think is high enough for high-stakes testing," complains Minnesota education commissioner Christine Jax. "There's not a lot of choice for something as critical as this."

While ETS is mining the whole K-12 market, the College Board has its eye on middle schools. This spring the company will unveil new math and English curriculums and tests designed to be like AP courses for seventh- and eighth-graders. College Board president Gaston Caperton says middle schools "are crying out" for such programs. Researchers at the College Board have also developed an SAT for eighth-graders, complete with developmentally appropriate math and verbal reasoning sections, to get kids thinking about college even sooner than they already do.

Not to be left out of the testing boom, the $400 million test-prep industry is also expanding. One might have expected John Katzman, founder and CEO of The Princeton Review, one of the two leading SAT-prep companies, to be at least a little concerned by University of California president Richard Atkinson's push to abolish the SAT. In fact, Katzman is ecstatic, calling the SAT "a vestige from another era" that "should be discarded at the first possible moment." It's a position he can afford to take, as his company, which is in the process of going public, recently launched, a potentially profitable interactive tool meant to help kids prepare for their state exams.

So here's the key question: When historians look back on this moment in American education, will they see a) the beginning of the end of the SAT; b) a national frenzy over school testing in general; or c) the dawn of the testing industry's greatest boom? Try d) all of the above.