Educational Testing Service under increasing fire Test-preparation assistance a major thorn to critics


Over the past decade, the Educational Testing Service of Princeton, N.J., has transformed itself from a small nonprofit educational institution into the world's largest testing company, administering 9 million yearly examinations that help determine the future of millions of people trying to get into good schools or professions.

It has quietly grown into a multinational operation, complete with for-profit subsidiaries, a reserve fund of $91 million and revenue last year of $411 million.

As it celebrates its 50th anniversary this year, ETS has come under fire not only for its failure to address increased incidents of cheating and fraud, but also for what its critics say is its transformation into a highly competitive business operation.

Yet ETS remains a nonprofit organization, a status that critics say gives the testing service unfair advantages. It does not have to pay corporate income taxes, saving tens of millions of dollars and freeing up cash to hire workers and develop ever more sophisticated tests.

Last year, ETS also set up a for-profit subsidiary to compete directly with private businesses in the booming industry of professional licensing and government testing.

What has also riled the critics is ETS' decision to break out of its academic mold and compete with private businesses by selling material that helps students prepare for the very tests it administers, advertising, "We prepare the tests -- let us help prepare you."

Last November, one of the testing service's main nonprofit competitors, ACT Inc. of Iowa City, Iowa, filed a federal lawsuit contending that a multimillion-dollar deal that ETS has with Sylvan Learning Systems Inc., a for-profit company with headquarters in Columbia, Md., was part of an effort by Sylvan to violate antitrust law and monopolize the market in computerized testing, the wave of the future in the industry. Sylvan has denied the allegations.

ETS was not named as a defendant, but the suit asserted that Sylvan had worked with the new for-profit subsidiary of ETS, the Chauncey Group International, to try to steal ACT customers.

The criticism has rekindled an old debate about whether ETS deserves its nonprofit status.

"ETS is standing on the cusp of deciding whether it is an education institution or a commercial institution," said Winton Manning, a former ETS senior vice president who retired two years ago. "I'm disappointed in the direction they have taken away from education and public service."

ETS President Nancy Cole says the company is aware that its nonprofit status is a source of concern as the service increases its competition with for-profit businesses.

"We do constantly test ourselves with the basic question of what is the unique contribution of a nonprofit," Cole said.

"There's still no for-profit competition for the basic admissions testing that we do, and really the bulk of our revenues come from areas in which there is not direct competition from for-profits."

Determining when a nonprofit organization crosses the line and should become a for-profit business is a subject of debate among both nonprofit organizations and government agencies.

The Internal Revenue Service establishes restrictions on how much money a nonprofit group can take in from businesses unrelated to its public service mission. But often conflicts occur long before a nonprofit company reaches the ceiling.

When the Educational Testing Service was started in 1947, its mission was clear. The company was set up to develop and administer college entrance exams. Its main rival today, ACT, is also a nonprofit organization, and there are many smaller commercial testing companies. But the testing service dominates college and graduate school admissions testing, delivering twice as many tests as ACT overall.

The company is best known for its flagship exam, the SAT. The testing service also administered 630,000 tests for graduate school admissions last year.

About 180,000 teachers in 34 states took its certification exams, and 820,000 foreign students seeking admission to American schools demonstrated their English proficiency on its tests.

The service's for-profit subsidiary, the Chauncey Group, tested the skills of 1.5 million workers in 34 fields last year. An additional 1.2 million workers with native languages other than English submitted to its evaluation of their ability to use English on the job.

The new round of criticism was touched off by the creation of the Chauncey Group and by the parent organization's own expanding sales of promotional material to teach students how to take its tests and to advise parents and students on the college admissions process.

"For years, ETS scoffed at test preparation, and now they are marketing their own line of products," said Andrew Rosen, the chief operating officer of Kaplan Educational Centers, a subsidiary of the Washington Post Co. and a leading test preparation company. "I'm not sure why the taxpayer needs to subsidize another player in these industries," Rosen said.

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