Higher education financing must compete with an array of other public service needs and when a high percentage of US state higher education systems reach financial capacity, pricing pressures will inevitably be passed to consumers. This paper, prepared for the National Commission on Financing 21st Century Higher Education, proposes that new solutions beyond additional funding through traditional financing vehicles are not just necessary but warranted. A new type of public-private relationship is needed, but such a relationship must do more than simply share accountability - it must also allevi
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Higher education financing must compete with an array of other public service needs and when a high percentage of US state higher education systems reach financial capacity, pricing pressures will inevitably be passed to consumers. This paper, prepared for the National Commission on Financing 21st Century Higher Education, proposes that new solutions beyond additional funding through traditional financing vehicles are not just necessary but warranted. A new type of public-private relationship is needed, but such a relationship must do more than simply share accountability - it must also alleviate fiscal pressures on students and their families and create mechanisms that prevent more tuition increases. The author examines two new ideas to consider the extent to which they may be 21st century solutions. The first is social impact bonds (SIBs) which are essentially a pay-for-performance contract in which the public sector commits to funding demonstrable improvements in social outcomes. The second is the income share agreement (ISA), which allows funders to receive some fractional share of a fundraiser's (i.e. a student's) future earning potential in return for providing capital upfront.
The paper concludes that most agree on the unrealistic expectation of continued growth of public investment in higher education or the funneling of more funds into existing investment vehicles. SIBs and ISAs represent novel solutions to limited government budgets. They promote accountability and long-term investment in educational infrastructure. They align risk and reward. They are both flexible and responsive to changing labor market dynamics. Making these tools work will require new ways of thinking about not just public priorities but also private-sector investment risk and reward.
The University of Virginia Miller Center created the non-partisan commission in 2014 to recommend policy and funding changes to help the US attain the goal of 60 per cent of the labor force with a postsecondary degree or certificate by 2025. With support from Lumina Foundation, the commission was tasked with developing policy proposals aimed at providing long-term sustainable finance models for US higher education. To learn more about these issues, the commission engaged highly qualified experts to create 10 white papers on different dimensions of the higher education problem. The Commission suggests that higher education needs new financing options to increase educational attainment for all students, but particularly for low income students and students of color and to encourage innovative, high-quality, lower-cost forms of teaching and instruction.
Edited excerpts from publisher's website and publication.
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