We can’t let student debt hold pandemic-displaced workers back

Educational investments tend to be countercyclical, and this recession surely will be the same as a growing number of displaced workers look to upskill and reskill. But many workers lack the startup capital to invest in themselves. What’s worse, millions of Americans are heading into the crisis bearing the weight of student loan debt.

Federal financial aid and traditional loans play a critical role but can only go so far. Some of the most valuable short-term training programs aren’t eligible for aid, and workers often lack the credit histories needed to obtain private financing. Even if they can secure loans, doing so asks them to assume debt without a clear employment outcome. In good times, that’s a calculated risk, but amid economic upheaval it becomes an untenable one for many Americans.

Fortunately, new financing tools have emerged in recent years that both expand access to education and training and, in many cases, aim to mitigate the risk for students.

Cities such as San Diego have launched so-called “income-share” programs, where training investments require no upfront outlay. Colleges such as Purdue University have embraced performance-based approaches to funding higher education, where the cost of tuition is based on an individual’s earnings after completion. 

And merit-based financing startups such as Meritize and Climb Credit provide financing for in-demand programs based on measures of the borrower’s potential and the quality of their chosen educational program, rather than backward-looking metrics such as credit history. Climb, for example, calculates expected ROI for students, and only provides loans for programs it expects to generate significant returns. Employers and lenders also are beginning to team up to de-risk training investments for learners by, in effect, turning employers into co-signers with an individual’s new “skills as collateral.”

These approaches not only expand access to traditional education providers, but can provide financing for innovative, new programs such as Dominican University’s two-year bachelor’s in applied computer science, developed in collaboration with college startup Make School. 

Nontraditional approaches to financing education also are being used by on-ramps to higher wage jobs such as Washington-based nonprofit Merit America. Students in their program only pay if and when they are employed, dramatically reducing the risk for low-wage workers who were in a precarious economic perch even before the economic effects of the pandemic took hold.

In many ways, income-share agreements, alt-finance and performance-based pricing were made for a moment in which economic upheaval will heighten concerns of education consumers about the risks of financing education and training. Early research from Vanderbilt University suggests that students who are reluctant to take out loans for college may find financing mechanisms that link the cost of education to workforce outcomes more appealing.

But while new approaches can help mitigate risk, they have generated their fair share of concerns, as well. Critics of income-share agreements, for example, cite concerns that they lack the legal protections necessary to prevent predatory behavior by those who may be seeking that financial return. 

These risks are real, but so are the risks of workers missing out on much-needed training, or of students taking on debt for education programs that don’t lead to a job. During the last recession, enrollments in higher education swelled, but outcomes declined. Many students who took on debt but didn’t earn a credential were worse off than when they started. Moreover, even many who graduated ended up underemployed. It’s no longer enough — and it never really was — to simply educate people and hope it translates to a job down the road.

Education and training must be tightly tied to workforce demand and it must be timely. At least 22 million Americans have lost their jobs in recent weeks, and they need options that will allow them to quickly retool and get back to work. Multi-year degree programs and traditional financing aren’t up to that task.

We should not eschew new models that are up to the task, for fear of potential risks. Instead, we must act quickly to put sensible consumer protections in place while extending the reach of new financing approaches. The risks associated with new modes can be diminished by clear guidance and definitions, parameters and protections from state and federal policymakers. There is no reason we can’t increase the reach of these emerging models now, while also moving on sensible protections such as uniform disclosure forms and, for income-share agreements, mandated caps on the percentage of income and duration of payment required.  Such proposals have garnered bipartisan support.

Our calculus must evolve. This no longer is “business as usual,” but a crisis. And the livelihoods of millions of Americans depend on our adjusting quickly.

Maria Flynn is president and CEO of JFF (Jobs for the Future Inc.), a national nonprofit that builds educational and economic opportunities for underserved populations. Follow her on Twitter @MariaKFlynn.