Leveraging Pay for Success in Higher Education

This blog series is centered on Third Sector’s assessment and applicability of Pay for Success in higher education in partnership with a new cohort of stakeholders.

This is blog post #1 of the series.

National Student Clearinghouse data reveal that while African American and Latinx students are enrolling in postsecondary institutions at similar rates to white peers, they are 11% less likely to matriculate into college the first fall after high school graduation. Additionally, even though the national six-year completion rate reached its highest level for all students in 2018, students of color are 20% less likely to graduate college within six years. These disproportionate outcomes to and through college have long-term effects on students’ future earning power and economic mobility.

Concurrent to the racial equity gaps in enrollment and graduation, the average cost of attending college is increasing, and state funding is decreasing. The Center on Budget and Policy Priorities show that overall state funding for public two- and four-year colleges in the 2017 school year was nearly $9 billion below its 2008 level, after adjusting for inflation. As public state funding for higher education decreases, dollars that follow student enrollment, like Pell Grants, become critical funding sources to support institutional costs exposed by diminishing state higher education budgets. Pell Grants, which are dollars from the federal government that do not need to be repaid, help students from low income families pay for college. While Pell Grants have been one support for students who might not otherwise get to and through college, information from the Integrated Postsecondary Education Data System (IPEDS) reveal that graduation rates for Pell Grant recipients are lower than for non-Pell Grant students.

For many students who are low-income, first generation, and/or students of color to successfully enroll and graduate from institutions of higher education, additional student support services at scale are crucial for success. As such, partners across the system must innovate new ways to pay for and support the achievement of student success outcomes and to close outcomes gaps.

There are many access and success nonprofit providers working to provide college-intending students the resources, information, and training necessary to successfully graduate from college. Among the breadth of providers demonstrating evidence-based success, the opportunities for scale and to drive funding toward results is extensive. Systematic funding of college access and success programs can allow declining higher education public funds to finance what works best for underserved students. Third Sector believes Pay for Success (PFS), a contracting mechanism centered on incentivizing success outcomes rather than solely services delivered, is well-suited to support and scale the systematic financing of evidence-based programs that achieve student outcomes in higher education. During a critical era of thinning resources and widening disparities, Pay for Success is a model that incentivizes outcomes that matter, moving from solely enrollment to matriculation, persistence, and graduation outcomes.

Building on early evidence of the potential for PFS in higher education, Third Sector kicked off a new project in February 2019. This new work seeks to leverage PFS to finance wraparound supports that drive student access and success outcomes to and through college, particularly with college-intending students that are low-income, first-generation, and/or students of color. With Kresge Foundation support, Third Sector is building a cohort of higher education institutions and coordinating state agencies, access and success nonprofits, and funders that can apply PFS in the postsecondary space. This effort builds off a 2017 Kresge-funded engagement with one such provider, uAspire, which works with students to access financial aid, make financially responsible decisions, and overcome financial barriers to persist and ultimately complete their degree with a manageable amount of debt. In a feasibility assessment of PFS for text-based student support services provided by uAspire, the foundation for the potential of leveraging PFS to support student matriculation, persistence, and graduation was developed and serves as the basis for the vision of the PFS in Higher Education cohort. Read more about Third Sector’s work with uAspire in this white paper analysis.

To do this, Third Sector will recruit and collaborate with interested stakeholders from higher education systems and institutions, wraparound student support service providers, and philanthropists and investors to participate in a national cohort. The cohort will workshop the components of PFS, including defining outcome goals, determining data accessibility, and evaluating the viability of outcomes-based funding structures to effectively apply PFS to finance and scale access and success services. Third Sector will also apply practices that have worked well in other policy areas and test them with these new stakeholders. This is an exciting opportunity to bring evidence-based solutions to improve and scale college access and success for low-income, first-generation, and students of color. Third Sector is excited to see how the cohort model can facilitate the collaborative conversations with key stakeholders in higher education.