Insights & Outlooks

Starting From Scratch: A New Approach to Higher Ed Finance

Financial Aid Reforms
Starting From Scratch: A New Approach to Higher Ed Finance

In 2009, at the beginning of what would turn out to be a short-lived undergraduate career, I arrived at one of America’s most selective universities with an idealistic vision of what college could be. But I was dismayed to find that in class after class, theory trumped practice, and lectures superseded experiences. Frustrated, I returned home and founded a school of my own, teaching a more hands-on, project-based approach to computer science. Four years later, our bachelor’s degree program was officially approved by WASC Senior College and University Commission (WSCUC) (the same body that accredits Stanford, Berkeley, and Caltech).

What I’ve seen—over and over again—in the intervening years is that my college experience wasn’t just the product of one institution stuck in the past. Rather, the systemwide incentives in higher education—starting with the financial aid system—do not push colleges to focus on outcomes or relevance. When my co-founder and I started Make School, we quickly realized that to rewire higher education from the ground up would require creating a new incentive system—one in which students and their families aren’t the only ones with a financial stake in the ultimate outcome of education. 

There’s no need to dwell on the litany of statistics about the costs and risks of college. The implications for our country’s educational and economic prosperity are dire. There’s agreement across the political spectrum that we’re in desperate need of change. But the raft of policy proposals currently on the table, many of them from 2020 presidential candidates, all seem to be soothing the symptoms of the problem without addressing its underlying cause. What if we could start over? What would higher education finance look like?

When we started Make School, we had the privilege of trying to answer that question—and, perhaps, the naiveté to think we could pull it off. It’s led us to develop a system of paying for college, which includes income share agreements, that is far from higher education orthodoxy. But the principles we started from have ensured we are on the hook for our students’ outcomes. If we don’t continuously improve for them, we don’t thrive. Our principles may be instructive for institutional leaders and policymakers looking for a bigger and more systemic approach to change.

We decided that paying for college should be:

Outcomes-driven. The typical student loan model doesn’t care how much money you’re making today compared to six months ago, or even whether you have a job at all. What if the amount of payment changed based on your income and did not accrue additional interest? You wouldn’t have to pay during times of financial hardship, and you could take time off from work without the burden of mounting debt, which is a concern with the current income-driven repayment plans.

Riskier for colleges than for students. Call it risk-sharing or “skin in the game,” but the premise is simple: colleges should succeed only when their students do. And they should be on the hook to deliver outcomes that can ensure shared success. This can be achieved both through innovative financing models and new regulation. 

Accessible for everyone. The up-front cost of college creates sticker shock that can deter students from pursuing postsecondary education altogether. Many students and their parents also struggle to qualify for certain types of traditional loans, such as federal PLUS loans or private loans, which often require clean credit histories. We wanted a system that made education accessible for any student, no matter their family’s financial situation.

A growing number of colleges are embracing new approaches to student financing that fit some of these criteria. Loan repayment assistance programs (LRAPs) provide students with downside risk protection that enables them to pursue lower-paying, public-interest careers. Income share agreements are another promising approach, and we were heartened to see the bipartisan legislation introduced this year to create a legal framework and enshrine consumer protections for that model. But we hope that’s just the beginning. 

Solving the conundrum of student ROI is going to take creativity that has been lacking in the policy solutions to date. Starting a college from scratch helped us think bigger and take risks that are paying off for us and, more importantly, our students. What other ideas would emerge if policymakers and higher education leaders wiped the slate clean?