Will Education Derivatives Be the Next Wall Street Crash?
By Carole Hornsby Haynes, Ph.D. June 1, 2018
Education is becoming a tradeable market that does not concern itself with educating children.
Silicon Valley titans are partnering with investors to develop products and services. The annual ASU-GSV Summit for education technology is a must-attend event where venture capitalists meet with executives from education start-ups to review new personalized or adaptive learning systems for students.
Well-endowed foundations are partnering with large investors to seed a national market while a shift in education policy allows massive amounts of data to be collected for these investments.
The Every Student Succeeds Act (ESSA), which the GOP establishment promised us would return local control over education, has proven that it is just another ploy to destroy parental control.
ESSA directs federal dollars for Pay-for-Success schemes as well as providing millions of dollars in grants to schools that require education models designed for data collection – competency based, blended, and/or personalized learning models.
One of the Pay-for-Success schemes sweeping the investment market is Social Impact Bonds. Because data collection is vital for these investments, schools are being pressured to provide even more data. Baseline, growth, and value added data are needed to determine the investment return.
Social impact investing is upfront private capital to start a program such as pre-K. Loan repayment is based on success pre-determined by data. Taxpayers are promised savings over the long run by preventing the need for remedial services.
Another false promise to lure gullible – or greedy – investors. SIB programs are being promoted to lawmakers under the guise of alternate funding for education programs yet there seems to be little concern by lawmakers about the realities of these bonds.
There have been volumes of research about pre-K programs over the past 60 years proving government pre-K programs to be unsuccessful and even causing harm to children. Even so, lawmakers continue to throw more taxpayer money down that sinkhole.
One of the first social impact bonds was sold in 2012 by Goldman Sachs to finance a pre-K program in Utah. Though Goldman got a full payout, the cost savings promised has not been realized.
Goldman Sachs made huge profits in a Chicago pre-K program. For their $16.6 million investment they got a return in excess of $30 million from the city -- for a program that was not successful. What a ripoff for the taxpayers.
The impact investment market is mammoth, valued at $400 million to $1 trillion by 2020. Additional profits are being made with packaging the bonds which are then sold on the derivatives market to individuals and institutions worldwide.
This has eery overtones from the past. Will social impact bonds be the next market crash? Where will our lawmakers be when that inevitably happens? What will be the fallout for education?