Federal Support Announced to Improve Higher Education Outcomes with “Pay for Success” Initiatives

By Anna Fogel

Community colleges offer an important pathway to the middle class. However, many students fall off the path along the way; almost half of students drop out and only 38% complete a degree within eight years, according to an analysis by Preston Cooper of the American Enterprise Institute. These statistics are even worse for at-risk, minority and first-time students. Effective student support services, however, have been shown to increase graduation rates substantially, according to MDRC research on the City University of New York’s (CUNY) Accelerated Studies in Associate Program (ASAP). But colleges need resources and capacity to implement these programs and scale them to students who could benefit.

Pay for Success” is an important strategy to help scale evidence-based interventions to improve outcomes.

Earlier this year, the federal government announced a $100 million fund at the U.S. Treasury dedicated to supporting state and local governments interested in pursuing Pay for Success initiatives. The Social Impact Partnerships to Pay for Results Act (SIPPRA) is an exciting opportunity for governments to design a Pay for Success project and get substantial federal support for programs. These projects will be designed and shaped by state and local governments and can address a range of priority issue areas, including child welfare, family stability, education, health, employment, recidivism and veterans.

Outcomes achieved vs. services delivered

Governments are using Pay for Success as a new way to fund social programs by tying payment to positive results. Pay for Success projects have various financing and contracting structures but share the same core principles: using data and measurement to inform decisions; building new incentive structures based on defined outcomes, such as graduation rates (and not just outputs, such as the number of students served); and where appropriate, injecting private capital to scale social programs.

These are not new concepts for the education sector. In fact, Pay for Success optimizes strategies that many in the sector have been using for years: incorporating outcomes-based funding strategies, assessing the evidence base behind different programs, and identifying funding sources to scale what works.

Social Impact Bonds are one example of a Pay for Success structure. A Social Impact Bond (SIB) enables governments to achieve results for our communities by bringing investors and service providers together to tackle particular social challenges. Investors provide the capital to scale the work of effective service providers. Government repays investors, according to a performance based contract, once the project achieves outcomes that generate public value. SIBs transfer risk from the public to the private sector and align project partners on the achievement of meaningful impact.

Whether they are focused on helping mothers in poverty achieve healthy births, supporting immigrants and refugees obtain and maintain good-paying jobs, or improving education outcomes for low-income college students, Social Impact Bonds align project partners on the achievement of measurable outcomes.

Pay for Success in postsecondary ed

How could Pay for Success improve postsecondary education outcomes? Here are a few ideas:

Increasing graduation rates at community colleges. While graduation rates at community colleges have remained stubbornly low in recent decades, some programs have shown they can move the needle. CUNY’s ASAP nearly doubled graduation rates for CUNY students participating in the program, and is on track to replicate these results in Ohio at Cincinnati State Technical and Community College, Cuyahoga Community College, and Lorain County Community College, according to MDRC. This impact is extraordinary: MDRC notes that ASAP’s effects are the largest they have found in more than a decade of research in higher education.

A Pay for Success project could fund the costs of implementing ASAP at community colleges. For example, a state department of higher education could partner with a cohort of community colleges, agreeing to each pay a set price for meaningful outcomes, such as increased credit accumulation and graduation rates. Private investors—motivated by the potential to improve educational outcomes as well as earn a small return—would fund the upfront costs of expanding and delivering ASAP. A third-party evaluator would measure ASAP’s impact on these outcomes. If the evaluator found that graduation rates and credit accumulation were improved, the community colleges and department of higher education would pay the investors for these outcomes.

Increasing earnings and transitions to higher education for immigrants and refugees. The Greater Boston area is home to more than 200,000 adult, English-language learners. This population faces significant barriers to employment. Studies find that adult English-language learners in Massachusetts earn $24,000 less per year than those with similar credentials who speak English fluently.

The nonprofit Social Finance, in partnership with the Commonwealth of Massachusetts and Jewish Vocational Service (JVS), launched a Pay for Success project to address this challenge in 2017. The Massachusetts Pathways to Economic Advancement Project aims to increase employment opportunities for limited English speakers and help them progress up the economic ladder by providing workforce development services. JVS, one of Greater Boston’s largest community-based workforce and adult education providers, is offering four distinct program tracks–Rapid Employment, English for Advancement, Skills Training, and Bridges to College–to approximately 2,000 immigrants and refugees in Greater Boston over three years. Vocational English language classes, integrated with job search assistance and coaching, will help limited English speakers make successful transitions to employment, higher-wage jobs and higher education.

As part of this project, Social Finance raised $12.4 million to cover the cost of JVS’ services. The Commonwealth will repay investors only if JVS successfully achieves positive outcomes for participants, including increased earnings and successful transitions to higher education.

National and global

There are now 22 Pay for Success projects delivering services across the U.S., and more than 120 projects globally. In the U.S., these projects have mobilized more than $200 million in private capital to address issues ranging from criminal justice to homelessness.

Pay for Success has enjoyed strong bipartisan support. The federal government has included Pay for Success in important legislation, including the Workforce Innovation and Opportunity Act (WIOA), the Every Student Succeeds Act (ESSA) and now SIPPRA, and seven federal agencies have directly supported local Pay for Success projects. Dozens of states, counties and cities—blue, red and purple—have commissioned projects or passed enabling legislation.

Pay for Success projects are an opportunity to expand high-quality services to those who need them while ensuring the transparency and accountability of services via strong measurement tied to payment for outcomes achieved and not just services delivered.

The U.S. Department of the Treasury will run a national competition in early 2019 to select projects for funding. State and local governments are eligible to apply, proposing local Pay for Success projects. This is an exciting opportunity for governments and higher education institutions to leverage federal funding to tangibly advance their education policy objectives and deliver measurable results for students.

Anna Fogel is a director at Social Finance, a national nonprofit with the mission to mobilize capital for social progress.

Photo by Diego PH on Unsplash.


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