Federal regulators look at equity and the loan-loss reserves together and call it primary capital.

"It's a much broader question of school reform, rather than just looking at equity," Mr. Odden said.

Maybe we need to focus less on choice and even excellence and instead look more at equity.

Currently, the Fed looks at primary capital rather than equity alone.

"We're looking at equity as part of the mix, and we're setting up relationships with venture capital firms, representing firms that provide a flow of business for us as they incubate new companies."