A frequent complaint about US charter schools is that they have an incentive to minimize costs. Districts and states determine schools’ income based on the number of students they serve, and school profit is the difference between total funding received and the total cost of serving students. In this way, minimizing costs maximizes profits but risks devaluing learning.
What if funding were linked not to the number of students served, but to positive educational outcomes achieved?
The pay-for-success (PFS) financing model may be a foundation to build on. If a program achieves specified targets, the service provider is paid, often at a higher rate than in traditional fee-for-service contracts; if the service fails to meet its targets, the funding agency is not liable for the costs.
PFS projects are underway across the country. A preschool program in Chicago released interim results last year showing the project met initial targets and triggered the first success payment to investors. Meanwhile, a program in New York to reduce recidivism did not produce measurable impact, and the funding agency was not liable for program costs. In both projects, the PFS approach worked as designed.
Financing schools based on a PFS model could bridge the enormous gap in our national debate over the future of public education. Proponents of school choice point to stagnant student performance despite increases in per-pupil spending. Opponents fear that public support will simply line investors’ pockets at the expense of student learning.
PFS financing would encourage schools to experiment with new methods while guaranteeing that investors are paid only if students succeed.
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