New Higher-Ed Business Models That Millions of Americans Need to Get...

Postsecondary Learning

New Higher-Ed Business Models That Millions of Americans Need to Get Better Jobs

By Allison Dulin Salisbury     Apr 1, 2019

New Higher-Ed Business Models That Millions of Americans Need to Get Better Jobs

Demographic shifts and rapid-fire technological change are upending traditional postsecondary education and workforce training. In response, schools and companies alike have responded with innovative ideas, but almost all focus on applying technology—like predictive analytics, blended learning, and MOOC-enabled degrees—to student support and instructional services.

Yet new technologies often overshadow the equally urgent need for new business models.

New models are especially critical to meeting the needs of working adults and the families they support. There are some 44 million working-age Americans without college degrees who are not earning a living wage, and they desperately need better access to education to advance financially. To be sure, creative new providers—bootcamps, apprenticeships, skills academies, and online microcredentials—are emerging. But most of those alternative providers are either heavily reliant on government subsidies and philanthropic support, or target learners who are already highly-educated, and can afford to pay fees without financial aid.

Creating more educational on-ramps to good jobs is perhaps the most significant challenge that our country faces in preparing for the future of work. Our research, conducted with the Strada Education Network, has found promising models. But all fell far short of the scale needed to help millions of American adults.

If we want new education models to succeed, we also need significant business model innovation. “Closing the skills gap at scale isn’t just about seven million unfilled jobs today,” as Ryan Craig, co-founder of University Ventures and author of “A New U: Faster + Cheaper Alternatives to College” has said. “It’s about moving tens of millions of Americans from declining or stagnant sectors of the economy to dynamic sectors like technology and healthcare over the next decade.”

Here are the five key innovations that have the potential to remake business models to better serve modern learners.

1. Employer As Payer

For most of the industrial era, businesses shouldered the responsibility for training their workers. But today, workers no longer spend their entire careers at a single employer, and businesses have increasingly shifted that responsibility to the individual. With the labor market tightening and skills staying relevant for increasingly shorter periods of time, that pendulum may be swinging back.

We’re seeing employers as an emerging payer for many alternative education programs, underwriting all or part of the cost for learners. They pay directly for training, or pay a placement fee to programs that send them skilled workers (similar to a staffing-company model). Vendition, for example, runs a 3-month apprenticeship program for tech sales that not only is free for learners but pays them $2,500 a month. Other companies then pay Vendition to find and train qualified workers. Similarly, LaunchCode runs a 90-day apprenticeship program that companies fund through a new pay-for-service model. At the end of the training program, employers typically hire apprentices as full-time employees.

This model has the potential to expand access to high-quality, work-relevant training programs without increasing student debt. But because employers are the payers and, therefore, the primary customers, we must be careful to ensure that these programs benefit learners just as much as employers. Programs shouldn’t just set students up for a first job, but should give them the skills they need to adapt and grow in their careers—even if that means leaving for another employer.

2. Open Doors, Not Narrow Doors

Many, although certainly not all, higher-ed institutions are about narrow doors. They intentionally limit the number of students they serve to preserve a certain type of educational environment and to boost their apparent selectivity. New models, however, are built specifically to grow to serve as many learners as could stand to benefit from their programs.

This is a paradigm shift: from selectivity as a sign of program prestige, to scale as a sign of program success. Savvy, equity-minded postsecondary institutions are also catching on. Michael Crow, president of Arizona State University, argues that “elite” should be a moniker reserved for colleges who truly deliver excellent educational outcomes, not those who simply let few people in.

This push isn’t just about serving more people, but about reaching those who are different from traditional learners who have historically been served by the formal postsecondary system. We’re talking about parent learners, frontline workers and low-income adults.

3. Outcomes-Based Financing

The growth of short-term, skill-focused programs opens up new mechanisms for outcomes-based financing, such as income-share agreements (ISA). Under such agreements, learners pay no up-front cost for tuition in exchange for paying a portion of their salary for a set period of time after finishing the program.

Such an arrangement works best for programs that are relatively short in duration and are explicitly focused on boosting wages. ISAs are less feasible for longer programs, because the providers will not see tuition revenue until four or more years after a student started.

Kenzie Academy, in Indianapolis, offers 6-12 month training programs in design and coding, along with an optional 12-month apprenticeship. All can be funded through an ISA that charges students 17.5 percent of their income for four years after they graduate. Two San Francisco-based tech schools, Lambda School and Make School, follow a similar model. Lambda runs a 9-month online program, while Make School offers an accredited bachelor’s degree in applied computer science that can be completed in two years. In the case of all three, students don’t pay anything until their salary hits a certain threshold (typically above $50,000) and the total payment amount is capped.

While ISAs have the potential to reduce the financial risk for learners, these offerings are still largely homegrown and are not standardized for consumers. Because of that—and the relative novelty of the funds—there is a risk that consumers may not fully understand the agreement they are signing onto. ISAs also must be well capitalized, especially in the early years, in order to be viable. We need to develop standards and a regulatory framework around ISAs to ensure consumers are protected.

4. Earning While Learning

For low-income Americans, a free education isn’t free enough. Life—food, housing, childcare—requires money, and people often can’t afford time off work to pursue education.

If we want more people to pursue part- or full-time education, living stipends must be more widely available. Federal financial aid for traditional higher-ed institutions provides such support, but is typically not available for alternative providers who don’t participate in the federal system.

But providers are getting creative with how to provide support. Vendition, for example, pays apprentices while they are learning. Kenzie just partnered with Kelly Services to provide students with steady part-time work that is built around their academic schedule. And Lambda just announced a pilot to use ISAs to cover the cost of living.

5. Co-Opting the Cooperative

Co-ops—businesses in which customers are members and part owners—have been successfully used in retail, restaurants, and other industries. (REI and grocery stores across the country are a few examples.) The model has potentially interesting applications to postsecondary education and workforce training as well.

In education, this nascent approach is being built out for the first time by Klimb Hire, a new entry-level training program for learners without a degree. Learners participate in a program, structured like a co-op, that focuses on teaching skills in demand in high-growth fields, as well as on building career networks. When they complete, alumni pay back the cost through an ISA and also become part owners of the co-op. Alumni are thus incentivized to help other alumni find good jobs, because the financial status of the ISA and the co-op—which they have an ownership stake in—is enhanced when learners find well-paying work.

The co-op model is already being tested in the workforce sector. Turning Basin Labs runs a co-op staffing and recruitment agency. Every worker placed through the agency is also a member-owner, with full-time workers earning over $10,000 in ownership compensation, plus healthcare and other benefits.

If we’re serious about expanding economic and educational opportunities for new learners, we have to get creative. The five approaches outlined here are just a starting point to harness emerging innovations that can unlock completely different business models. The challenge is to encourage their growth through responsible investment—and then, perhaps, to come up with five more.

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