
The Social Finance model ensures training programs don’t get paid until students get hired. And students train for free until then.
Because one of the things this blog focuses on is “good works,” I have inevitably put up stories that later turn out to have unexpected downsides. (If I learn about a problem, I do put up a correction.) One story I recall was about an effort in mining country to train out-of-work miners for high-paid tech jobs. I don’t think anyone was trying to rip anyone else off, but there was a Pollyanna aspect to the program, and it didn’t work. Not many people acquired the skills and those that did were unable to find those high-paying jobs.
So that is how we learn. Now there’s a nonprofit called Social Finance that doesn’t pay up on a training program until the trainee has that good job.
Steve Lohr writes at the New York Times, “Bill Barber saw an ad on Facebook last year for American Diesel Training Centers, a school in Ohio that prepares people for careers as diesel mechanics. It came with an unusual pitch: He would pay for the schooling only if it landed him a job, thanks to a nonprofit called Social Finance.
“After making sure it wasn’t a scam, he signed up. After going through the immersive five-week program, he got a job with starting pay of $39,000 a year — about $10,000 more than he made before as a cable TV installer. …
“American Diesel Training is part of a new model of work force training — one that bases pay for training programs partly on whether students get hired. Early results are promising, and experts say the approach makes far more economic sense than the traditional method, in which programs are paid based on how many people enroll. …
“Social Finance, founded a decade ago to develop new ways to finance results-focused social programs, is showing how the idea could grow quickly just as the pandemic made job-training programs more important than ever. The coronavirus put millions of people out of work, upended industries and accelerated automation. …
“The Social Finance effort is powered by a fund of more than $40 million raised from philanthropic investors. The money goes toward paying for low-income students, as well as minority candidates and veterans, to enter the training programs. … It has supported four job training programs, including American Diesel Training, in the past year. It has plans to have double that number a year from now. …
“A few nonprofits have a track record of lifting low-income Americans into higher-paying jobs, including Year Up, Per Scholas and Project Quest. Their training is tightly focused on specific skills and occupations, they work closely with employers, and they teach soft skills like communication and teamwork. But there are too few of them, and they struggle for sustainable financing.
“Social Finance is seeking, designing and supporting new programs — for-profit or nonprofit — that follow that training formula but then apply a different funding model.
“ ‘There is emerging evidence that these kinds of programs are a very effective and exciting part of work force development,’ said Lawrence Katz, a labor economist at Harvard. ‘Social Finance is targeting and nurturing new programs, and it brings a financing mechanism that allows them to expand.’
” ‘The goal is to create a tool for impact, to get more people on the economic escalator,’ said Tracy Palandjian, co-founder and chief executive of Social Finance. …
“For Social Finance and its backers, the career impact bonds are not traditional investments. For them, breaking even or a small return would be winning — proof the concept is working, which should attract more public and private money. …
“The Social Finance income-share agreement with students ranges from about 5 percent to 9 percent depending on their earnings — less from $30,000 to $40,000, and generally more above $40,000. The monthly payments last four years. If you lose your job, the payment obligation stops.
“ ‘Our investors aren’t after high returns. They’re primarily after social impact,’ Ms. Palandjian said.
“When screening programs, Social Finance looks for those that offer training for specific skills linked to local demand, and have data to show that its students graduate and get good-paying jobs. … American Diesel Training, based in Columbus, Ohio, met the requirements. The for-profit company’s program is designed as a short, intensive course to train entry-level diesel technicians, mostly for trucking companies and dealerships. …
“Before Social Finance arrived, Tim Spurlock, co-founder and chief executive of American Diesel Training, looked into financing through income-share agreements offered by venture-backed start-ups. The terms, he said, were far less favorable for students.
” ‘Social Finance comes at it from a completely different angle,’ he said. … ‘We’ve completely proven our educational model. The problem was the funding mechanism.’ ”
More at the New York Times, here.