The Need For A Pay-For-Success Model In Education

We’re living through the 4th industrial revolution, and it’s a time of intense and profound change. New technologies from AI to genomics are promising to transform society as we know it today, and this is placing intense pressures on society both to equip people with the right skills to thrive in such a fast-paced world, but also to re-equip them repeatedly throughout their lives.

Despite this however, most of our education system still revolves around the norms passed down via the Prussian model 130 or so years ago. In spite of the churn across the economies of the world that’s seeing the preeminence of companies growing ever shorter, our premier universities have remained largely insulated from the winds of change. Indeed, the youngest entrant in the QS Top 10 universities of the world league table is Caltech, which was founded in 1891!

It’s a sector that has undoubtedly contributed tremendously to society as we know it today, but there is a strong sense that things drastically need to change. Three core challenges underpin this need for the industry to reassess just how it can deliver value to students and to society.

1. The need for lifelong learning

People across the developed world are living longer lives than ever before, and as London Business School’s Lynda Gratton and Andrew Scott highlight in The 100-Year Life, this has profound implications for our lives and careers. Not only are we likely to be working for longer than our forebears, but we are likely to shift between careers throughout our lives, and perhaps even intersperse periods of work with periods of leisure or caring for relatives. Sometimes this is due to life circumstances, sometimes it’s due to technological or economic disruption forcing us to learn new skills to maintain our relevance in the job market.

The motto is very much one in which learning is something that will need to happen throughout our life, and therefore the ‘study — work — retire’ model that much of the industrial age has been founded upon is creaking at the seams. This will mark a shift away from the value of our education being largely wrapped up in the signalling our school provides to potential employers towards a more experiential approach that equips us with the skills we need to make a difference in the workplace straight away.

2. Skills gaps highlight the poor connection between study and work

The last few years have seen an endless array of studies documenting the skills gap that is undermining efforts by companies, especially in areas such as cybersecurity, AI, and big data. Indeed, so pronounced is the problem that Tata Consulting teamed up with the World Economic Forum to create Closing the Skill Gap 2020, which aims to promote the value of training and development to ensure the economies of the world have the skills needed to thrive.

Nowhere is this more evident than in cybersecurity where industry estimates suggest there will be 3 million unfilled vacancies as a result of a lack of skills in the market. Indeed, some 75% of applicants for jobs in the sector today are insufficiently skilled for the role they’re applying for. A major part of the challenge facing the education sector is the rapid evolution in skills required as often by the time curricula has been developed, skills requirements have moved on.

A report published last year from consultancy firm Cognizant highlighted some of the jobs that they believe might emerge in the coming years, with roles ranging from Head of Machine Personality Design to Algorithm Bias Auditor, Cyber Attack Agent to Machine Risk Officer. While the roles themselves may sound somewhat grounded in science fiction rather than reality, there are countless roles today that would have been impossible to imagine a generation ago, so the key takeaway is not to get hung up on specific titles, but rather to accept that new jobs will emerge, and new skills will be required to thrive in those roles.

3. Education is getting more expensive

This kind of frequent re-training would be acceptable if the financial realities were not looming large upon us. We’ve all seen the figures around student debt in the United States, with over $1.6 trillion owed by students, and individuals regularly leaving college saddled with the kind of debts previously associated with buying a house. It’s scarcely sustainable if you do that once, but if we’re telling people that they need to re-train several times throughout their careers, then they can be forgiven for viewing the future with extreme trepidation. That much of this debt ends up being written off merely emphasizes the broken pipeline between academia and industry.

This situation is further complicated by a frankly puzzling approach to training and development among employers, who despite frequently bemoaning the skills gap that holds them back, rarely invest in developing their workforce. Indeed, a recent report from Adecco highlighted the lack of strategic direction towards training and development in many workplaces, and especially in smaller organizations.

Of course, there are some forethinkers, such as Tom Siebel’s C3.ai, who not only give employees dedicated time to update their skills, but pay them a bonus for each course they complete on the MOOC platform Coursera. The tech company appreciates the importance of skills development, and incentivize employees to upgrade their skills, but they remain among a minority of more enlightened employers.

Time to move towards the Income Share Agreement model

We believe that this is a situation that has to change. As Victor Hugo once said, “nothing is as powerful as an idea whose time has come,” and this is a problem that demands a solution today. We think that solution is the ‘income share agreement (ISA)’ model, which means students and education providers enter into a partnership by which their education is paid for out of the income they earn as a result of their education. It’s a model directly predicated on paying for success in the labor market rather than paying for access to education.

This means that students complete their education at either a minimal or zero cost up front, and then start to repay the cost of that education with a fixed percentage of their income for a defined period of time, when they start earning above a pre-agreed amount. The idea is that by only paying back when you’re earning above the minimum income threshold, it makes education much more affordable, while also giving the school every incentive to ensure the skills you gain are attractive in the labor market. Indeed, whereas the obligations of the school might have ended upon graduation in the past, this new approach requires a more lifelong partnership.

It’s a trend that has already become commonplace in vocational training, with numerous coding schools adopting this approach. Software development is in many ways a natural fit, as students learn specific skills for the workplace, and there is a notable shortage of developers, so the pathway is a clear and transparent one.

For education to be disrupted at scale however, ISAs need to move beyond software development and start helping people to learn the wide range of skills required for work in the 4th industrial revolution. While the model is far from commonplace, we’re confident that those at the vanguard will use the beachhead they’ve created in software development and branch out into other disciplines, and with this begin to drive substantial and sustainable change in the education sector, especially in fields where there is considerable employment demand.

It’s not a change that will come easily, but it’s a change that will come as we get better at mapping the needs of the job market in real-time so that skills can be provided to meet that demand, while also doing a better job at tracking our careers (and income) so that a lifelong contract is entered into between education providers and students. This will require a much deeper relationship than most universities and alumni associations provide today.

For our part, we aim to provide a global ISA management and servicing platform and to help schools with operating capital to manage a change that sees payment based on employment outcomes, rather than paid up front.

Any education provider considering adopting the ISA model, or any financial institution, foundation, or company aiming to support this shift to an outcomes based education, should reach us at [email protected].

#education #incomeshareagreements #futureofwork