Were SAT Changes for the Kids or to Help the College Board Make More Money?

The SAT is a huge revenue source for its parent nonprofit. It was reformed to try to keep it that way.

Mar 7, 2014 at 10:41AM

Wednesday, the College Board, the group responsible for the SAT, announced changes that included removing difficult vocabulary and making the essay portion of the exam optional. Most news reports accepted the College Board's purported reason for changing the SAT: The non-profit wanted to more accurately reflect the schoolwork completed in high school and needed in college.

The New York Times's headline reported the College Board's goal was for the SAT to "realign with schoolwork." CNN also reported, with little skepticism, that the purpose was to connect the test to high schools and create, in the words of College Board President and CEO David Coleman, "more college-ready students.

Another answer?

But there's another reason to make the test more appealing to students: improving the College Board's financial outlook.

The SAT faces two challenges. First, the ACT, a competing test, has slowly gained market share, even passing the SAT in total number of test takers in 2012 . Second, the trend of "test flexible" universities is spreading, with top-100 schools like the University of Rochester, Brandeis, and Wake Forest accepting alternatives like graded exams, extracurricular activities, or simply high-school GPA.

Why might these trends be a problem? The College Board is a non-profit, but one with a yearly revenue of more than $750 million, according to the group's most recent publicly available 990 form. The president at the time of the 990, Gaston Caperton, made more than $1.5 million, including incentive and deferred compensation; 22 other employees earned at least $200,000. This is a sprawling non-profit deeply connected to higher education in the United States, with a budget that reflects that omnipresence.

The SAT clearly plays a role in this budget. In 2012, 1.6 million students took the SAT, and as the New York Times reported, today the number is likely higher. The 2014 test will cost students (or their parents, often) $51. Waitlist registration, available to those who miss registration deadlines, costs an additional $45. Changing the date of your test runs you $27.50. The details of the College Board's revenue stream aren't publicly available, but SAT administration and all of its related paraphernalia -- The Official SAT Study Guide with DVD ($31.99), the SAT Score Verification Services ($18), the SAT Online Course (just $69.95 a year!) -- surely make up a sizable portion. Chadwick Matlin of Slate.com conservatively estimated this combined revenue at around $115 million back in 2006.

It's worth noting here that the twin goals of accurate student measurement and revenue maximization aren't mutually exclusive. For instance, one common complaint of the SAT is that its scores are actually a worse indicator for college success than high school test scores. In that case, a more accurate test would probably be good for students and universities, but also better for the College Board's bottom line. Finally, the College Board is also partnering to make a free test-prep course with the Khan Academy, a move clearly not taken to generate more revenue.

Regardless, journalists should stop reporting the SAT's reforms as if they were the result of a few good-hearted education advocates at an NGO, rather than a business desperately trying to keep a core revenue stream intact.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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