As reported by Forbes, the ACT college admissions test has been sold to a private, for-profit company. Operating losses regarding the exam (exacerbated by statewide contract losses to the SAT as well as covid-related testing shortfalls) played a part in the sale.

[Excerpts]

ACT Inc., the Iowa City-based nonprofit behind the ACT, a standardized test used in college admissions, announced Wednesday that it has agreed to move the test business into a new for-profit company. That entity will be majority owned by Nexus Capital Management, a Los Angeles-based private equity investment firm, with the nonprofit retaining a minority interest and continuing to do research on education and workplace success. Encoura, an ACT subsidiary that offers data science and strategic college enrollment services, will also be a part of the for-profit company.

The new for-profit is fashioning itself as a “public benefit corporation.” That doesn’t make it tax-exempt or keep it from distributing profits to its owners. It does mean the new corporation’s board is supposed to take the public good, as well as shareholders’ interests, into account. Janet Godwin, ACT’s current CEO, will be CEO of the new entity. The new corporation, like the remaining nonprofit, will be based in Iowa City.

ACT Inc. has struggled for years to break even. The nonprofit posted a net loss of $12 million in fiscal year 2022 ended in August 2022, a net loss of $6 million in fiscal 2021, and a net loss of $60.5 million in fiscal 2020, when the number of test-takers declined precipitously during the Covid-19 pandemic, according to its recent 990 tax filings. Just under 1.3 million students took the ACT in calendar 2021, down from the two million who sat for the test in 2017. The number of test takers has since recovered slightly—to 1.4 million in 2023. (In 2023, 1.9 million high school students took the SAT, which is also administered by a nonprofit, the College Board.)

At the end of fiscal 2022 (the last year for which a 990 is publicly available), ACT’s assets were $225 million, down 44% from $399 million at the end of fiscal 2019. Spokespeople for ACT declined to say what its current assets are, or whether it is running low on cash. Godwin said in an interview that all the nonprofit’s operating assets would be transferred to the new company, while some amount of cash—she wouldn’t disclose how much—will be paid to the nonprofit by Nexus.

Godwin characterized the merger and the unspecified cash infusion that the new corporation will get from Nexus as a way to accelerate ACT’s strategy of expanding its services into the workplace and training markets. “We’re focusing not just on students going to college—we’re focusing on students who are transitioning straight into the workforce,” Godwin said.

Test pricing will not change as a result of the new partnership, according to the ACT website. Currently, the ACT costs $93 with the writing portion of the test, and $68 without. That fee includes score reports for the test-taker, their high school and up to four colleges of their choice.

 
Here is the ACT press release regarding the transaction.

 
CNN Business takes a closer look at the ACT move.

[Excerpts]

It’s been a volatile few years for US college entrance exams, and the companies that run them, as universities around the country try to figure out what’s the best way to evaluate prospective students.

In the midst of that turmoil, the companies (often nonprofits) that create these tests have been slammed by financial losses.

Now, private equity firms are swooping in to help while taking majority stakes in exchange.

That’s worrying some education advocates.

Last week, ACT, Inc. announced that it would partner with California-based private equity firm Nexus Capital Management and move its test into a for-profit company.

ACT Inc. says that this cash infusion will help expand and enhance services beyond testing. “At this moment in time, 40% of students leaving high school on average are going straight to the workforce,” ACT CEO Janet Godwin told CNN. “I think Nexus sees with ACT the absolute need that our nation has to make sure that we are developing talent for the needs of our employers.”

Godwin, who will retain her position, declined to share the monetary details of the deal with Nexus but said it would bring “opportunities for inorganic growth” like mergers and acquisitions, strategic portfolio investments and access to new talent.

It is “a very persistent misconception” that ACT is in “economic duress,” she said.

“We had impacts with Covid when schools were shut down and we weren’t able to operate at the scale that we typically do. But since 2021, we’ve been growing our revenues and we’ve rebounded very significantly.”

Still, some economists and education advocates worry that the move will decrease transparency in the testing process.

“A private equity buyout of the ACT sets off a lot of alarm bells for me,” Charlie Eaton, an associate professor of sociology and cofounder of the Higher Education, Race, and the Economy (HERE) Lab at the University of California, Merced, told CNN.

“There’s a reason why we typically have nonprofits deliver public goods like college admissions exams. People need to be able to trust that there’s a fair evaluation process so nothing gets distorted.”

Nonprofit companies are subject to regulatory oversight and disclosure requirements, which help ensure that transparency and maintain public confidence.

A company owned by private equity can obfuscate what the company actually does to the public and potentially to regulators.

Nexus Capital Management’s portfolio also includes Savvas Learning Company, which specializes in designing K-12 curriculums.

If a private equity firm has input in the testing but they also own a company that develops the curriculum, they have control over the entire process,” said Azani Creeks, a senior research and campaign coordinator at the Private Equity Shareholder Project.

“They have a lot of control in ways that are not transparent. With something as important as college admissions testing you want that transparency. Nonprofits have to share a lot of information with the public, private equity-owned structures don’t,” she added.

ACT says it will not immediately raise test prices and that current, nonprofit ACT will retain a minority interest in the company and continue its research on education and the workplace.

Godwin told CNN that she has heard and understands the concerns, but that ACT partnered with Nexus because of its “track record of working in education in a transparent way” and with the intention of creating long-term value instead of chasing profit.

Critics remain skeptical.

“We should be worried about industries where there are a lot of government subsidies available, where consumers often are not well informed, and where there’s a lot of market power for firms,” said Constantine Yannelis, an associate professor of finance at University of Chicago Booth School of Business. “I think the testing industry is unfortunately one of those industries where all three of those factors apply pretty strongly.”

A lot of colleges that are state-owned and receive government subsidies use the ACT to admit students and to administer aid, he said. “I worry that profitability could come at the expense of students, and particularly students coming from lower income families.”

 
As reported by The New York Times, Harvard and Caltech have announced a reinstatement of their SAT/ACT testing requirements.

[Excerpts]

Harvard will reinstate standardized testing as a requirement of admission, the university announced Thursday, becoming the latest in a series of highly competitive universities to reverse their test-optional policies.

Students applying to enter Harvard in fall 2025 and beyond will be required to submit SAT or ACT scores, though the university said a few other test scores will be accepted in “exceptional cases,” including Advanced Placement or International Baccalaureate tests. The university had previously said it was going to keep its test-optional policy through the entering class of fall 2026.

Within hours of Harvard’s announcement, Caltech, a science and engineering institute, also said it was reinstating its testing requirements for students applying for admission in fall 2025.

The schools had been among nearly 2,000 colleges across the country that dropped test score requirements over the last few years, a trend that escalated during the pandemic when it was harder for students to get to test sites.

Dropping test score requirements was widely viewed as a tool to help diversify admissions, by encouraging poor and underrepresented students who had potential but did not score well on the tests to apply. But supporters of the tests have said without scores, it became harder to identify promising students who outperformed in their environments.

 
The Washington Post has additional details on the announcements by Harvard and Caltech:

[Excerpts]

Harvard College will require applicants to submit standardized test scores once again, becoming the latest highly selective school to reinstate the requirement after making the choice optional during the pandemic.

The California Institute of Technology also announced Thursday that, effective immediately, SAT or ACT scores will be required of applicants for undergraduate admission.

Harvard’s undergraduate school had previously said it would remain test-optional through the 2025-2026 application cycle. But on Thursday, it said students applying to the college for fall 2025 admission — hoping to join the graduating class of 2029 — will now have to submit standardized test scores as part of their admissions package.

At Caltech, the highly selective private university in California, applicants’ scores weren’t visible to the admissions office under the moratorium imposed during the pandemic. But an increasing number of applicants had been taking the tests each year, according to university officials. More than 95 percent of the most recently enrolled class took the standardized exam.

Caltech officials said Thursday the decision reaffirms Caltech’s “commitment as a community of scientists and engineers to using all relevant data in its decision-making processes.”

Most students who enrolled at Harvard during the test-optional years had submitted test scores with their applications even though they weren’t required, according to the school.

Still, the shift could come as a surprise for some applicants who hadn’t planned to take a test.

In announcing its decision Thursday, university officials cited research by Harvard professors Raj Chetty and David J. Deming, and co-author John N. Friedman of Brown University, who used data from hundreds of universities and more than 3 million undergraduate students per year to explore socioeconomic diversity and admissions.

“Critics correctly note that standardized tests are not an unbiased measure of students’ qualifications, as students from higher-income families often have greater access to test prep and other resources,” Chetty said in a statement Thursday. “But the data reveal that other measures — recommendation letters, extracurriculars, essays — are even more prone to such biases. Considering standardized test scores is likely to make the admissions process at Harvard more meritocratic while increasing socioeconomic diversity.”

In “exceptional cases” when applicants are unable to take the SAT or ACT, the school will accept certain other scores, including AP and IB tests. The policy will be formally assessed at regular intervals, school officials said.

Harvard’s Faculty of Arts and Sciences Dean Hopi Hoekstra said the tests are a means for all students, regardless of their background and life experience, to provide information predictive of success in college and beyond.

“Indeed, when students have the option of not submitting their test scores,” Hoekstra said in a statement, “they may choose to withhold information that, when interpreted by the admissions committee in the context of the local norms of their school, could have potentially helped their application. In short, more information, especially such strongly predictive information, is valuable for identifying talent from across the socioeconomic range.”

 
Inside Higher Ed offers more information and opinions on the about-face implemented by Harvard & Caltech:

[Excerpts]

Harvard University and the California Institute of Technology both announced yesterday that they will require standardized test scores starting this fall, returning to pre-pandemic policies.

Harvard is replacing a temporary test-optional policy, but Caltech was one of the only institutions to go fully test-blind at the start of the pandemic, meaning that since 2020 it has not considered scores even when they were submitted.

Harvard will accept alternatives to the SAT and ACT, such as Advanced Placement and International Baccalaureate test scores, but only in “exceptional cases.”

The decisions were a sudden about-face for the institutions, both of which had said they would extend their temporary policies for at least one more cycle: Caltech until fall 2025, and Harvard until fall 2026.

So why did they elect to reverse course and cement their testing policies now?

“What changed is the zeitgeist,” said Harry Feder, executive director of FairTest, a nonprofit advocacy group that opposes standardized testing.

Harvard and Caltech’s return to testing mandates follow a wave of other highly selective institutions doing the same, including Yale, Dartmouth and the University of Texas at Austin. Those colleges made their decisions following the publication of new research from the Harvard-based nonprofit Opportunity Insights, which touted test scores’ predictive power of future academic success. That reignited a dormant debate over the benefits of test requirements.

Feder believes the research—and the subsequent media blitz covering the revived debate—put pressure on other highly competitive institutions still mulling their post-pandemic testing policies

“They were nervous about the competition at their top level of admissions,” he said. “This is not based on some new academic data that takes a deep look into how test-optional has gone for them … it’s about reasserting their commitment to high academic standards, which their peer institutions have clearly established one cannot do without test scores.”

When Caltech extended its testing moratorium in 2022, it did so on the grounds that the correlation between test scores and academic success was small, and “appears to dissipate as students progress through the first-year curriculum,” as the university put it at the time.

“A consensus has developed among faculty and professional staff involved in admissions … that numerous other key attributes of applications serve as stronger indicators of the potential for student success here” Caltech professor Jared Leadbetter, chair of the institution’s first-year admissions committee, wrote in a statement at the time.

In a statement Thursday, university officials appeared to contradict their earlier assessment, writing that requiring scores “provides admissions officers and faculty reviewers useful information about academic preparedness.”

“We think it is critical that our admissions office and the faculty who are reviewing applicants have available to them all the information that could shape their understanding of a prospective student’s readiness for our rigorous academic programs,” Caltech’s faculty advisory committee on undergraduate admissions policy wrote in the announcement.

Shayna Chabner, Caltech’s chief communications officers, told Inside Higher Ed in an email that admissions data from the past four years showed “nearly all matriculated students had taken standardized tests”—more than 95 percent.

But she offered no additional data or internal research to back the reversal of the university’s view that test requirements can help ensure academic success. When asked about the apparently conflicting conclusion reached in 2022, Chabner responded, “Many application components provide insight into a prospective student’s academic preparedness and potential for long-term success at Caltech and beyond. Standardized tests are one data point in the process, and we believe it is important to make available all relevant data in our decision-making process.”

Feder believes the recent wave of media coverage and selective university decisions supporting a return to test requirements has played an outsized role in the decision.

In February, a few weeks after the Opportunity Insights research inspired a supportive New York Times newsletter and blew up what seemed to be a solidifying test-optional status quo, Caltech reconvened its faculty advisory committee on undergraduate admissions.

“It is time for a fresh look at our undergraduate admissions policies,” university president Thomas Rosenbaum told faculty in an email announcing the committee’s reformation. “Circumstances have changed.”

Some evidence suggests that the decision to restore testing was driven by concern over new students’ lack of academic readiness; a petition circulated among Caltech faculty earlier this year argued that students had been coming to campus unprepared for the rigorous curriculum.

A Harvard spokesperson told Inside Higher Ed that the university’s decision to restore test requirements two years before the previously set 2026 deadline was “rooted in recent research,” referring to the Opportunity Insights reports from, among others, Harvard professors Raj Chetty and David Deming. The spokesperson did not answer a question about whether Harvard had conducted its own internal research on applicant pools, as Yale and Dartmouth did.

Harvard made a point of noting [the ethnic and socioeconomic disparity in test scores] in its announcement, and promised to use test scores holistically in application reviews.

“Admission officers understand that not all students attend well-resourced schools, and those who come from modest economic backgrounds or first-generation college families may have had fewer opportunities to prepare for standardized tests,” Harvard undergraduate admissions dean William Fitzsimmons wrote in a statement.

But Feder said that undercuts their rationale for returning to requirements in general.

“You’re saying you need the SAT to find diamonds in the rough. The problem is, there aren’t enough diamonds,” Feder said. “The juice isn’t worth the squeeze. And for every brilliant Black applicant who gets plucked out, hundreds more have their chances hurt.”

 
The BBC looks at the resilience of the test prep industry, which continued to thrive even during the pandemic and the resulting implementation of test optional policies:

[Excerpts]

On its face, [the recent flurry of SAT/ACT testing reinstatements] is good news for the test-prep industry, which stands to benefit from customers keen to ace once-again compulsory exams. But experts in the industry say these companies' bottom lines held surprisingly steady during the four years of test-optional admissions. In fact, many of the test-prep industry's largest players emerged largely unscathed. That's because some students continued to take the exams and pay for the prep courses. Many were betting that even though tests weren't required, reporting solid scores would put their applications at the top of the pile. And by and large, they were right.

Despite optional testing policies throughout the past four years, many students continued to prepare for, and subsequently take, entrance exams such as the SAT and ACT. Where some students saw an opportunity to forgo submitting scores, many others ploughed ahead as if nothing had changed. This was particularly the case for those in higher income brackets.

Data from the College Board shows that during 2022, 46% of students who took the SAT came from either the highest (more than $110,244 [£88,678]) or second-highest ($83,766 to $110,244 [£67,379 to £137,054]) quintile in terms of median family income. During 2023, these figures were nearly identical. Comparatively, only about 10% of SAT test-takers during those two years came from the lowest earning quintile ($53,263 [£42,838] or lower).

"Students coming from the highest income levels not only took the SAT more than any other group, but they scored the highest," says Sara Haberson, a former dean of admissions at Pennsylvania's Franklin & Marshall College, and a college admissions expert. Many students from these higher-income groups continued to use test prep services while the exam was optional in the same way they would have in the pre-pandemic landscape.

"It is clear that parents' income directly impacts a student's ability to take standardised tests and perform well on them," she says. "Despite most colleges being test-optional these last few years, colleges have clearly valued students who report test scores – and high scores at that. The wealthier students were at a huge advantage as they were more likely to take standardized tests during the pandemic and perform better."

Business for most exam-prep companies – including both The Princeton Review and Kaplan, executives at each company told the BBC – hummed along as students continued to take high-priced classes, just as they would have pre-pandemic. Throughout the test-optional years, industry leaders say many students were advised by both experts and parents to act as if nothing had changed in order to stand out, especially if their kids were applying to highly selective colleges, which saw a spike in applicants during the period.

"I had to tell parents that they needed to invest in test prep," says Haberson. "Scores matter in this landscape so much that if a family needs to choose how to spend money in regard to the college admissions process, I want families to invest in test prep."

"Despite shifting college admission requirements, The Princeton Review never pivoted away from providing students with resources for the SAT and ACT," says Rob Franek, editor-in-chief at The Princeton Review, one of the largest test-prep companies in the US. "Over the past four years, more than 13 million students took the SAT and or ACT… Test scores have continued to matter to colleges."
"He says test scores also matter in determining tuition factors such as financial aid, scholarships and grants, so many students continued to take the exams when they were optional. In a survey released from The Princeton Review in February, 36% of respondents said financial aid was their main reason for taking the standardized exams. "With 98% of our respondents reporting they will need financial aid to pay for college, we think this is a very significant reason students are taking the SAT and ACT.""

A revamped SAT for 2024 – now shorter and digital – offers even more potential revenue. While the exam will remain similar at its core, even minor changes have sent students scrambling to prepare. Haberson says the changes are a business boon: "I guarantee the test-prep industry has gotten a big boost."

And as college admissions change with more applications than ever, exam scores may be more important than ever. "Colleges are spending four or five minutes on an application," adds Haberson. With so little time to take everything into consideration, "students better jump off the page".