Exposing Educators to Risk

I don’t think that anybody would dispute that our current education system is flawed. It’s hard to get out of school without a massive pile of debt. I went to one of the cheapest state schools in the county with my parents’ support. I still wound up over 10k in the hole. I know of many people who are in far worse shape, and they don’t have the skills that could lead a high-paying job.

I’ve spent most of my career working in for-profit education, and the situation isn’t any better. When I worked in China, it was common to hear that students had taken out loans to attend English courses. In Ukraine, loans aren’t common, but paying for English is a serious personal sacrifice for many. I’m not sure that many students received a great return on their investment for a few reasons:

  1. English, in and of itself, won’t open that many doors.
  2. Classes focus on the least important skills: you don’t need more conversation clubs, you need to write solid emails, handle a business call and read complex documentation.
  3. Learning English is painful and hard, schools make money when classes are fun

Islamic finance had a useful idea that could help get us out of this mess. The strict prohibition on interest, know as riba, is actually an injunction against unequal risks in financial dealings. A person can invest in a business, but it’s forbidden to guarantee a return—the investor must assume risk. The entire Western financial system is built around isolating investors, banks and businesses for risks while maximizing their exposure to profit.

Universities face no risk if they churn out thousands of graduates with degrees that offer little to no hope of gainful employment. Banks that provide private student loans can make someone’s life miserable until every last penny, plus obscenely high interest, is extracted. The English school faces no repercussions if students don’t go on to get better jobs with their English. It’s the ultimate not having skin in the game.

Many of the new coding bootcamps have a fascinating business model: You pay nothing until you start working in computer programming. They are financially invested in your success, not entertaining you and giving you a certificate. It’s not hard to guess that I’d run my English classes differently if I got paid based on the future earnings of my students.

I don’t see this as working universally, but the system needs tweaking so that more people have a stake in the success or failure of students.