What You Should Know About “Pay for Success” as Testing Season Approaches

From this week’s newsfeed:

  • Chicago schools may end classes three weeks early due to lack of funding.
  • Several dozen Detroit schools close temporarily due to a “boil water” advisory.
  • Some Boston schools anticipate 20%+ cuts to already meager budgets.
  • Philadelphia teachers crowd-fund a billboard explaining they’ve been working without a contract or raises for nearly five years.

Against this backdrop we enter another high-stakes testing season where teachers and students are expected to relinquish their classrooms to the demands of big data, praying they score high enough to avoid the turnaround list. Each year this becomes more difficult as schools are deprived of even the most-basic levels of public support. Test scores are used to punitively grade schools and rate teachers even as the most important human aspects of education, the ones that cannot be uploaded to data dashboards, are carelessly dismissed. It makes no sense until you realize that data, rigorous assessment and ranking systems are demanded to accomplish the true goal of transforming public education into a vast market for private investment. Tim Scott offers a detailed analysis in his piece “Social Impact Bonds: The Titans of Finance as the Altruistic Merchants of Schooling and the Common Good.”

Pay for Success (PFS) is an investment model where public institutions seek infusions of private capital to finance programs that would otherwise remain unfunded. Returns are paid if programs demonstrate they’ve met predetermined metrics for “success” as outlined in the Social Impact Bond (SIB) deal. Deal brokers determine the metrics without input from the people accessing the programs. Those who have the money define what “success” looks like.

Provisions for Pay for Success were written into the new Every Student Succeeds Act, and last October the first two deals were issued by the US Department of Education. One, promoting workforce development, is being run through Social Finance and Jobs for the Future. The other was awarded to American Institutes for Research (AIR) to investigate pilot programs for English language learners. While the number of Pay for Success deals in education is currently small, the article “Paying for Success in Education: Comparing Opportunities in the US and Globally” prepared by the Brookings Institution in June 2016 indicates there’s likely to be a big market for SIBs moving forward if these early deals pass muster.

Pay for Success (PFS) originated in the UK around 2010. New Profit and their policy arm America Forward were instrumental in bringing the idea to the US, successfully lobbying to have PFS provisions incorporated into WIOA in 2014 and ESSA in 2015. Way back in 2007, George Overholser, founder of Boston-based Third Sector Capital Partners, addressed attendees at America Forward’s annual “Gathering of Leaders” and pitched the concept of investing private capital in public programs that were determined to be both scalable and rigorous in measuring outcomes. He felt the timing for such programs was right due to the growth of nonprofit capital markets and improving technological capabilities.

“Information technology, with its amazing ability to coordinate minute-to-minute activities, is gradually transforming the way social purpose organizations are able to operate. For the first time, without going seriously broke, they are able to monitor quality in real-time, across hundreds of locations, and to track and control expenses as well.”

Given that quote, consider how digital education and embedded online assessments might function within a PFS framework. Technology-based education, heavily promoted during the Obama administration through initiatives like Future Ready Schools, ConnectEd and Digital Promise, seems like a perfect fit. SIB returns rely on data that can be readily processed by third party evaluators like SRI International, MDRC, and the Urban Institute. What better way to gather vast quantities than pushing students onto online learning management systems? Despite recent talk of “innovative assessments” it is clear that evaluators will not be sifting through portfolios of authentic student work to determine whether or not Goldman Sachs or Pritzker get their payout. The pressure for data-driven instruction will only mount if SIBs become a regular part of the education funding mix.

Thus far education SIBs in the US have focused on early childhood interventions and workforce development, both identified in a 2011 article written by staff of Third Sector Capital Partners and published in the Community Development Investment Review of the San Francisco Federal Reserve:

“Fit with Issue-Area Priorities-As the bonds unite private investors or philanthropists with government entities, alignment with issue areas is critical. Sectors such as education and workforce development are two areas in which local and federal governments have a vested interest in both increasing social outcomes and the efficiency of public funds spent. Strong government benefits will help attract public sector partners.”

Proving success in workforce development requires significant, and intrusive, levels of data collection and the ability to track students beyond high school. I can’t help but think the push to create longitudinal data systems and federal clearinghouses like the one discussed in hearings held by the Commission on Evidence-Based Policy Making could well be paving the way for widespread adoption of PFS models a few years down the road. Jeffrey Liebman serves on the Commission, and his profile from their website indicates more than a passing interest in PFS, “Since 2011, his Harvard Kennedy School Government Performance Lab (GPL) has been providing pro bono technical assistance to state and local governments interested in implementing pay for success contracts using social impact bonds.” While the repayment structure of several early childhood SIB deals are linked to data collection that takes place at kindergarten enrollment, the “Parent Child Center” SIB program in Chicago provides an additional payout if children meet specified levels of literacy attainment based on test scores in third grade. It’s clear that PFS-related data collection will not stop at the schoolhouse door.

The John and Laura Arnold Foundation has worked steadily to advance Pay for Success. A 2015 article from Inside Philanthropy notes, “The Arnolds and Bloomberg Philanthropies both recently received props from the Obama administration for being “essential partners” in government’s quest to surface the tools, programs and approaches that will help the country adapt to a changing educational and economic landscape.” Both are high-profile figures in the movement to privatize public education, and the Arnolds have also been at the forefront of pension “reform” efforts. Since 2013, the foundation has poured tens of millions of dollars into an “Evidence Based Policy and Innovation” initiative. In 2015, the Coalition for Evidence Based Policy wound down its operations after 14 years and merged with the Arnold Foundation. Among the coalition’s accomplishments were successfully lobbying for the creation of the Social Spending Innovation Research program in K12 education as well as Paul Ryan and Patty Murray’s Commission on Evidence Based Policy Making.

Below is a relationship map of select John and Laura Arnold Foundation grants showing strategic investments that have been made in various arenas to enable widespread adoption of Pay for Success and Social Impact Finance at a national scale. These include investments in funders, think tanks, lobbyists, data brokers, evaluators, as well as reform groups like KIPP and Teach for America suited to working within the constraints of data-driven educational environments. I plan to create maps for other Pay for Success players in following posts, so that we can better understand the financial networks operating behind the scenes to advance SIB implementation and school redesign efforts linked to these initiatives. To access the interactive map click here.


The tests are coming, and the data will be extracted from all but those who refuse to participate. So by all means continue to opt out! The reason for it has nothing to do with education. It’s about power and control. We are experiencing a hostile takeover of one of our most precious resources, our schools. If we cannot turn the tide, the idea of public school as a physical space in a community where students gather to learn face-to-face with a human teacher, certified and professionally trained, could disappear. And once our public assets are liquidated and teachers cast aside, the learning ecosystem model could very well be built on that wreckage using Pay for Success. I imagine a day in the not too distant future where online education companies or community partners compete for payouts based on the performance of students whose data is extracted on a minute-by-minute basis, not just during an end of year test. Public education would be transformed into a human capital pipeline to be mined for profit. Educational surveillance would become normalized with the Personally Identifiable Information of everyone interacting with these systems tracked in real time. The evidence-based policies advocated for by folks like John and Laura Arnold are not ones that value humans as individuals. Their world view is one where education is a series of generic programs to be scaled, controlled and managed for profit. Keep this in mind when you see those testing dates coming up on the school calendar. This is all happening for a reason, even though for the uninitiated none of it makes sense.