By Angela (Ceresnie) Prince, former Climb CEO
Programs within higher education are often criticized for their association with high student debt and for misaligned incentives regarding student career advancement outcomes. Sadly, there are some cases in which these criticisms are well-founded. However, by applying innovative thinking to the payment models used to access education, it’s possible to re-align incentives and help students access career-advancing programs at lower cost. Further, by thoughtfully applying these models to education programs that lead to strong career results, we can also solve issues of dramatic labor shortages in industries such as technology, trades, and healthcare.
We’ve seen similar payment models applied in other consumer contexts, but the benefits may be even more profound in the context of higher education and skills-training. Such innovations may prove to be part of the solution to reducing student debt and ensuring positive student outcomes.
To unpack the above dynamic a bit further: one primary financing option available to prospective students seeking to upgrade professional or vocational skills is to secure a government-backed student loan, which requires regular payback of principal and interest. While loans are often a sound option for many students, the current federal student lending model is missing an important piece of vetting — is this education actually worth the price tag? Without answering this fundamental question before writing blank checks to students, we’ll surely continue adding to the pile of outstanding student debt without a reasonable path to paying it off. That’s why Climb has been a pioneer in developing more accessible and affordable payment options to solve these fundamental issues.
Increasing access by vetting programs for value and affordability
The flagship student loan offering at Climb is focused on future salary and future affordability. Because we review programs before we work with them, we can understand whether or not it will meet learner expectations and prove to be worth the tuition cost. And — perhaps more importantly from a lender’s perspective — we can understand whether or not students will be able to afford their loan payments based on those salary expectations.
This model also improves access for underserved and under-employed populations in a responsible way. By understanding the goals of graduates, we can confidently approve borrowers for financing based on expected return. Traditional private lenders look at current income, which leaves out a population that needs skills the most and hinders our ability as a nation to meet labor shortages in key industries.
Aligning incentives between the school, the student, and the lender
Additionally, with traditional student loans the education program usually receives all of the tuition up-front, which means the institution may lack ongoing incentive to ensure students are both satisfied with the course of study and ultimately successful in their careers. Climb loans also solve for this lack of incentive alignment as well.
But what if we could take incentive alignment a step further, where we offer students a payment option in which they pay no financing costs, and the education program receives tuition in regular payments over time as the student succeeds?
With this development, the student would pay for education services as they go, and the educator would only recover full tuition if the student is able to successfully complete the program. This creates a powerful incentive for the education to deliver and satisfy the expectations of the student. It also creates a financing option that doesn’t impose a financing cost on the student. Instead, it allows them to spread the cost of the program over time, which can make an otherwise inaccessible program more affordable.
Maximizing student affordability
Fortunately, this type of innovative product and approach has already been developed and made available to students, as Climb has added two new products to our payments suite to do exactly this. Learners now have the option to leverage a 0% APR loan or a recurring billing payment option.
With increased adoption of this product, we could help reduce student debt levels, increase accessibility, and better align education program incentives with the interests of attending students. A win-win-win!
Helping strong education programs thrive
One might question why the education program would be willing to defer tuition payments and entertain this type of pay as you go model.
First, great programs that deliver outcomes recognize that access to — and the cost of — student debt is a barrier for many to enroll in a skills-based or job-training program. By reducing these costs and spreading out the cash flow impact that tuition can have on a student’s finances, the program becomes more accessible and affordable and better serves the communities in which they operate. Through this model, good schools build up enrollment and thrive, and schools that aren’t delivering for students don’t succeed.
“In this economy, our students are more thoughtful about spending their savings at this time, so including the Pay-as-you-go option has been extremely helpful to ensure people are confident when enrolling.” said Lisa Nuessle, General Manager at Ironhack. “Helping students navigate all of the payment options used to take a lot of time, but Climb also made the user experience very clear so students could easily navigate and choose the option that was best for them.”
Finally, many programs recognize the positive signal that such a payment option provides regarding the incentives of the education provider and its alignment with students’ best interests. Only a program confident in the satisfaction of its students would be willing to delay tuition payments. It literally allows the program to put its money where its mouth is — meaning the program only gets paid by the student as long as the student remains satisfied and enrolled in the program.