The Promise of – and Need for – Pay for Success

New funding announcement released: Providing High-Quality Career and Technical Education Programs for Underserved, High-Need Youth Through a Pay for Success Model

Every year, the U.S. Department of Education allocates roughly $1.8 billion in funding to States and outlying areas for strategic investments in career, technical and adult education at local education agencies, community colleges, correctional institutions, libraries, housing authorities, and community-based, faith-based and other non-profit organizations. Together, States and outlying areas match federal adult education resources with State and local investments totaling between $1 and $1.5 billion annually. And, the State match for career and technical education is $116 million per year with additional State and local resources estimated to be eight to ten times the federal investment.

We have made significant improvements in the collection of performance data related to these investments over the last decade, but unfortunately we have limited evidence-based feedback at the national level on these investments. Given statutory performance accountability requirements, we have aggregate data from States and outlying areas on the number of people who participated in career, technical and adult education and their overall outcomes during a given reporting period. However, there are some significant limitations to these data that lead us to a troubling spot: we too often just don’t know if participation in our programs brought about positive outcomes. Furthermore, we don’t know what would have happened to these participants had they not participated. 

In both adult and career and technical education, the data we do receive mask local variation and do not provide us with any feedback on what interventions work and don’t work. So, we may be paying for success. Or, we may be paying for failure. We also don’t know if higher levels of reported performance are optimal. Is a 42% student achievement rate (e.g., a 42% educational functional level completion rate in adult education) good? Is it the best the system can do? We just don’t know. Still, we pay.

Pay for Success (PFS) can help address these challenges.  PFS means that the government (or another entity like a hospital) only pays once an intervention achieves certain positive outcomes, as determined by a rigorous evaluation.  PFS financing models, which leverage philanthropic and private dollars to fund services upfront with the government paying after certain outcomes have been achieved, creates opportunities for us to strengthen our educational investments. As Secretary King said recently, “there has never been a greater need to focus on improving outcomes for our most at-risk student populations such as economically disadvantaged students, justice-involved students, English learners,  Native American youth, and children with disabilities, to name a few.”  While there has been some controversy regarding PFS, we at the Department see it as a promising tool to improve outcomes for at-risk students and promote evidence-based policy. By funding outcomes, rather than activities, PFS facilitates an allocation of resources towards interventions that improve the lives of the students they serve. It is not a substitute for government funding.  In fact, PFS can be useful in proving the case for increased public investment in successful interventions.

Adult and career and technical education are two program areas where the need for additional evidence and resources is great. That is why we are excited to announce the launch of a PFS competition to award a grant to support communities in developing PFS projects for career and technical education for youth and adults.  It will offer up to $2 million for four feasibility studies and transaction structuring for up to three PFS projects in development.  Applications are due on August 25, 2015. Click here for details on the competition and how to apply.

Our reality is that today many students need greater access to effective interventions, and we need to focus on the needs of these students and implement policies and programs that are either proven to improve outcomes, or are promising innovations that merit testing. PFS is one way of accomplishing this.

While we don’t believe PFS is the panacea, it will give a lot more useful feedback than many of our current funding mechanisms and reporting expectations do. It also holds promise to help break down the silos in which government too often operates, by funding outcomes that cross agencies and levels of government. Again, we are not advocating for PFS as a substitute for government funding, but as a different way of providing government funding – for actual positive outcomes instead of the promise for those outcomes. It is a means to an end – improving outcomes for our most vulnerable students and laying the foundation for them to succeed in life.