Four Years of Sharing Risk with Students

What happens if a student invests in their education but it doesn’t help them grow their career?

Today, students bear the downside risk entirely on their own. Spend $100,000 on your education and you’re on the hook for $100,000 plus interest, regardless of whether you see career growth. You may suffer decades of financial hardship while the school you attended just keeps raising prices regardless of the value provided.

To fix this, schools must adopt risk-sharing programs that align their incentives with student success. Risk-sharing is an unambiguously good thing in education: good for students and good for schools. Risk-sharing comes in a number of forms: tuition refunds for graduates who can’t find work, tuition deferment until students get hired, or schools sharing the default burden with lenders so that schools are incentivized to enroll students only in programs that work.

In this post, we’re discussing why we believe in risk-sharing and how we’ve come to better share risk with students over four years of efforts. Structuring risk-shares is hard because of the tension between access and outcomes: if schools are held accountable for graduates’ salaries or default rates, they’ll be incentivized not to admit underserved populations that have a lower chance of succeeding (and that's exactly the population we need to be working with).

Risk-share in practice

For four years, we’ve structured tuition to share risk with students. From the start, we asked students for monthly payments rather than upfront, giving students flexibility to start learning even if they’re not positive it’s right for them. Anyone who tried it and decided not to pursue a career as a developer spent only a small amount of money, rather than committing thousands upfront.

At the end of 2015, we rolled out the next form of risk-sharing: if graduates don’t land jobs in the field of study within 6 months, we refund their tuition. Overall, the guarantee has succeeded. Students find it motivating that we’re incentivized for them to succeed. It led to an expected bump in enrollments, as it built students’ confidence that they would graduate with improved job prospects, and if those failed to materialize their investment would be refunded.

Finally, we rolled out the option to finance the education through Skills Fund, a lending partner. With their plan, students would pay tuition over 36 months with payments of about $250 per month. Crucially, Thinkful shares the risk with Skills Fund. They withhold a percentage of tuition until graduates have fully paid off their debt. We’re not incentivized to enroll indiscriminately (as traditional schools are) – rather we’re only incentivized to refer students for whom the education will pay off.

Incentives are rarely perfect and our risk-shares have tradeoffs: in some cases they misalign students’ short-term incentives with their long-term success. Consider a student in the fourth month of the job search: that student will get a tuition refund if he or she doesn’t find a job for two more months. From a purely financial perspective, the ideal outcome for that student is to find a job right after the deadline, receiving a full tuition refund followed by a salary bump.

Still, risk-sharing is crucial for sustainable education. Savvy consumers will demand it and new institutions will emerge because of it. Thinkful will continue testing new ways of sharing risk with students. With each experiment, we’ll continue seeing what best aligns us with our students, refine our approach, and share our lessons.