Giving Compass' Take:
- Alana Dunagan proposes innovative funding models for colleges as an alternative to the pay-for-enrollment structure that has contributed to the student loan crisis.
- How can funders help policymakers better understand the implications of each of these policy suggestions?
- Learn about income share agreements.
What is Giving Compass?
We connect donors to learning resources and ways to support community-led solutions. Learn more about us.
The current funding model for higher education is pay-for-enrollment, meaning that colleges receive money for every student they enroll. That money may come from the student, a parent, a scholarship provider, or a government, but the school gets to keep it—even if the student fails their courses, drops out after the end of the semester, doesn’t go on to finish their degree, or isn’t able to use their education to get a job that enables them to pay off their loans.
Pay-for-enrollment isn’t the only way. There are other options to structure how we pay for college. Most of them involve paying schools for some sort of outcome. Outcomes-based funding models could change institutional behavior in ways that benefit students—and could replace a complex and arcane regulatory framework that has limited innovation, and been ineffective at protecting students and taxpayers from waste, fraud, and abuse.
Policymakers should embrace new funding models; incentives will drive institutions to innovate in ways that benefit students far more effectively than a long list of rules ever could. The authors of the next Higher Education Act (HEA) reauthorization cannot reasonably be expected to create definitions that will remain relevant through the next decade of technological change and business-model evolution. Focusing on outcomes instead will allow higher-education providers to innovate.
For example, Congress could authorize risk-sharing, whereby colleges would have to repay some financial-aid dollars if students default on their loans. This trial could comprise a set of experiments that test the effects of varying percentages of risk on the college’s part.
Congress could also experiment with income-share agreements—arrangements in which students pay back a set percentage of their future income for a limited period of time—where, through a similar risk-sharing mechanism, some college revenues would be contingent on a student’s future earnings.
Read the full article about innovative funding models for college by Alana Dunagan at Christensen Institute.