Social Impact Bonds: Bankers Get Paid Only If Education Works?

When I am speaking about education policy in different parts of the country (go here please), I am often asked what is coming next in the effort to profit and privatize public goods during the Q&A.

Lynn Davenport, a Cloaking Inequity reader from Texas, asked me to blog information about social impact bonds. What are they? The profit and privatization idea underlying social impact bonds is that communities basically outsource education programs (i.e. Pre-K) to banks and other corporations. The banks and corporations front the money for the program, and then do research on the program to see if it works. If their research shows that it is working, then they get paid a hefty rate— a “Pay for Success” model. Goldman Sachs and Wall Street love this idea! They see dollar signs!

Here is what Lynn sent along about the attempts to implement social impact bonds in Texas:

In April 2017, Texas State Rep. Tan Parker (R-Flower Mound), with the help of TEA Commissioner Mike Morath, put forth HB 2014 which would allow businesses to invest in Social Impact Bonds (SIB), in an effort to improve the math skills of the students whose schools opt into the program. If the students showed improvement with their testing outcomes in math, the business that contributed would receive a return on their investment. HB 2014 would allow the TEA commissioner to designate a campus as a “mathematics innovation zone.” Such a campus would be exempt from accountability interventions for two years and would be allowed to use a “pay for success” program approved by the commissioner. The bill sets up a framework for creating such pay for success programs funded by private investors. TEA commissioner Mike Morath testified that districts would essentially take out a loan from an investor, and repayment would depend upon achievement of measurable outcomes. According to the fiscal note, HB 2014 would cost the state roughly $10 million per year.


The “sell” on this approach to the public is that if the students don’t perform well, businesses wouldn’t get their money back.

Despite the failure of HB 2014, the TEA is moving forward with its SIB initiative through the restructuring of the agency. Commissioner Morath hired three former Teach for America (TFA) alums to fill the Deputy Commissioner roles. Under the Deputy Commissioner of Academics is a new position for Director of Social Impact Bonds. They hired a former TFA and KIPP teacher to fill the position.

Are you surprised that TFA and KIPP alums are in the middle of a bankers’ scheme to profit from and privatize education?

The New York Times reported “impact” investing is relatively new in the US and first emerged in the UK. In the US, Goldman Sachs introduced one of the first SIBs for a pre-K program in Utah. The results of “impact” investing are mixed. Much like the accountability system and NCLB, SIBs can result in Campbell’s Law: the more a quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.


Also see Alice Linahan interview with Lynn Davenport regarding social impact bonds in Dallas. In conclusion, Susan Ochshorn writes,

…Commodifying children is a very bad idea:  “By last summer, the U.S. Department of Education had gotten on board. Under the aegis of John King, former education commissioner of New York, they launched a Pay for Success grant competition, $2.8 million available for state, local, and tribal governments interested in exploring the investment vehicle’s feasibility. Early this year, as Betsy DeVos replaced King in the top job, the department distributed funding ranging from $300 to $400 million to 8 recipients. Rigorous evaluation, as the Urban Institute’s “Pay for Success Early Childhood Education Toolkit,” makes clear, is the sine qua non of the transaction, precise metrics and data collection essential for determining the venture’s outcome.

I find it interesting that Texas would like to set their beloved “accountability” metrics aside for several years while their for-profit math programs are implemented. Considering the statistical lies told during the 1990s Texas education miracle (See As good as advertised?: Tracking urban student progress through high school in an environment of accountability), and the political and arbitrary nature of accountability (See “Oh, crap”: Accountability is Arbitrary and Political)… I suspect the “research” on social impact bonds to support education policy pressed by Wall Street will be suspect. As a result, I am not hopeful that social impact bonds will be good education policy.

You can check out new episodes hot off the press and much much more by following my YouTube channel. You can also listen and download our Truth For America podcast from iTunes while you are on the road here.

Please Facebook Like, Tweet, etc below and/or reblog to share this discussion with others.

Want to know about Cloaking Inequity’s freshly pressed conversations about educational policy? Click the “Follow blog by email” button on the home page.

Twitter: @ProfessorJVH

Click here for Vitae.



Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s