Blog + Human Capital Management
Blog + Human Capital Management
Our latest installation of Workforce in Flux focuses on a trend accelerating across the workforce development and corporate training sectors: training programs driven by the job placement and advancement outcomes they deliver to workers.
Outcomes-driven training is an old idea, but one with newfound momentum as investors, workforce intermediaries, government agencies, entrepreneurs, and established training providers seek to uplift workers that have fallen behind. The implications of this movement across the workforce and training sectors are potentially substantial as capital and customers find it increasingly easier to access the most effective training programs.
We welcome a conversation to discuss this trend or others on your mind.
Andrea Mainelli, Senior Advisor
Jeff Dinski, Managing Director
Financial innovation is catalyzing private capital in support of student-friendly financing at training programs with track records of success.
Seismic innovations in student financing and workforce training programs don’t happen often, but we’ve noticed rumblings on these fronts over the past few years. In September 2020, Social Finance, a nonprofit dedicated to mobilizing capital to drive social progress through outcomes-based financing strategies, announced the UP Fund. Over its 10-year life, the $40 million fund aspires to serve several thousand individuals that face barriers to education and employment by providing them access to high-quality, career-oriented training for no up-front cost and student-friendly payback terms.
The UP Fund will invest in 8-12 Career Impact Bonds (CIBs). CIBS are “based on a student-centered income share agreement (ISA) that allows students to enroll in training with no upfront costs.” The model leverages capital from philanthropically-minded investors, training from industry-recognized providers with a track record of concrete labor market outcomes for graduates, and substantial wraparound supports that increase the probability of training progress, completion, and job placement. Participating investors and training providers share the risk associated with payback, which is contingent on a graduate securing a well-paying job. The CIBs being developed today by Social Finance are aimed specifically at serving students with substantial barriers to success including low-income status, criminal justice involvement, and immigration status.
General Assembly, Acuitus, and Alchemy Code Lab are a few of the training providers currently contracted with Social Finance to serve students under the CIB model. After training providers like these are identified and vetted by Social Finance, the fund’s capital finances the upfront costs associated with training and supporting individuals through to graduation and job placement. Only after graduated students begin to work and earn a salary over a pre-defined threshold do they “begin to pay costs as a fixed percentage of their income, capped at a set dollar amount and for a certain period of time.” If a graduate participating in one of the CIBs doesn’t find sustained, well-paying work, they don’t pay for their training.
What Social Finance has engineered with CIBs is similar to other “Pay for Success” models both within and outside of education that the organization helped pioneer over the past decade. By aligning incentives of students, training providers, and private investors around the student-centric outcomes of skills acquisition and job placement, CIBs have the potential to significantly improve the lives of thousands of disenfranchised individuals. Those training providers across industries with sizable skills gaps like IT, health care, and skilled trades that deliver concrete student outcomes will be well-positioned to benefit from the future expansion of such models.
As private efforts like CIBs mature, we will also be keeping on eye on student finance legislative reforms that could also spur outcomes-driven training by encouraging the growth of consumer-friendly ISAs. In 2019, two bi-partisan bills were introduced to address the current lack of ISA oversight – one in the house (“Kids to College Act”) and one in the senate (“ISA Student Protection Act”). Both bills fizzled, but they arguably laid the groundwork for future bi-partisan efforts under the new Congress to set the regulatory framework for ISAs moving forward. Bi-partisan or Democrat-driven legislation will likely need to include significant consumer protections like repayment caps and debt discharging in the event a graduate files bankruptcy.
Private and public efforts to provide both students and funders with consistent, comparable outcomes data are emerging.
Student financing innovations like CIBs are one manifestation of how outcomes-driven training and up-skilling/ re-skilling programs are gaining traction. Reporting and disclosure initiatives are another.
In December 2020, the Employment and Training Administration (ETA) at the U.S. Department of Labor released a new digital tool with little fanfare called “TrainingProviderResults.gov.” The platform aggregates student outcome information for over 19,000 training providers at the program level for all organizations deemed “eligible training providers” under the Workforce Innovation and Opportunity Act (WIOA). While the tool and underlying data are nascent and will need to be improved on substantially in the years to come, the ETA’s stated goal of “[supporting] consumers in making informed choices regarding training programs” is a worthy one. With key program features and outcomes, including training cost, completion rates, employment status, and post-program earnings publicly available and easily comparable, the potential for students and funders to find successful programs will be greatly enhanced.
Industry-driven analogues, such as the Council on Integrity in Results Reporting (CIRR) which was established in 2017 to provide clear outcomes data for the then-nascent bootcamp industry, have also played a part in guiding both consumer choice and capital. An analysis of CIRR’s participating members since its inception a few years ago indicates significant representation of training providers that have been acquired by both investors and operating companies. Companies such as Galvanize, Hack Reactor, Fullstack Academy, Thinkful, Bloc, Tech Elevator, and Lambda School were all members of CIRR at some point in time prior to significant fundraises or being acquired. While the success of these providers isn’t directly attributable to their public reporting of student outcomes data, such disclosure standards incentivize training providers to ensure their strategies are aligned with concrete career outcomes for their graduates. It would be an overstatement to say that membership in initiatives like CIRR cause training provider success in the form of attracting capital or new ownership, but the correlation between outcomes transparency and success in this case is noteworthy.