Shifting Risk to Create Opportunity
A Role for Performance Guarantees in Education

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In the latest AEI Future of American Education working paper, education policy consultants Bryan Hassel and Daniela Doyle of Public Impact explain that while many school districts are hesitant to hand over schools and school functions to outsiders, the Obama administration's goal of reforming five thousand of the nation's lowest-performing schools in the next five years would benefit from the services of independent educational entrepreneurs.

In "Shifting Risk to Create Opportunity: A Role for Performance Guarantees in Education," the authors suggest performance guarantees, similar to car warranties or a home builder's bonded contracts. These guarantees would establish a standard of performance and provide financial compensation for failed promises. Most importantly, these performance guarantees would make someone other than the state or district at least partially responsible for outcomes.

Coupled with user-friendly checklists for school leaders, providers, and guarantors, these performances guarantees for nontraditional education providers could mirror any of the following examples:

  • A district in need of turning around its failing schools has little faith that it can do so itself. Several nonprofit and for-profit operators are eager for the chance to try. As a condition of the contract, the district requires outside operators to post a "performance bond." For every five points below the improvement goal, the operator bond repays the school district 5 percent of the earned fee, up to a maximum refund of 30 percent. Conversely, operators can earn up to a 30 percent bonus if their schools improve faster than expected.

  • A new charter middle school guarantees that at least 90 percent of its students will pass eighth-grade state exams in reading and math. Should they fall short, the charter school will pay the school district half of the per-pupil allotment for each student falling below the 90 percent threshold. If the school does well and exceeds the target, it will earn a similarly sized bonus for each student above the agreed-upon goal.

  • A provider of virtual courses could sell its AP calculus program to a state department of education with the guarantee that the same percentage of students as those with in-class instructors will score a three or higher on the AP exam. The provider will refund the state in full if it defaults on its guarantee.

"Hassel's and Doyle's balanced analysis of the complexities and challenges of adapting performance guarantees to K-12 schooling is thorough and much needed," says Frederick M. Hess, director of AEI's education policy studies. These creative and practical solutions pave the way for educational entrepreneurs who are currently prevented from sharing their skills with schools and districts. By mitigating uncertainty, controlling quality, distributing responsibility, and providing political cover, performance guarantees encourage districts to use new methods and fresh thinking to help them succeed in school reform.

BRYAN C. HASSEL is the codirector of Public Impact. A national K-12 consultant, he is a recognized expert on charter schools, school turnarounds, education entrepreneurship, and human capital in education. His work has appeared in Education Next, Education Week, and numerous other publications. Dr. Hassel received his doctorate in public policy from Harvard University and his master's degree in politics from Oxford University, which he attended as a Rhodes Scholar. He earned his B.A. at the University of North Carolina at Chapel Hill, which he attended as a Morehead Scholar.

DANIELA DOYLE is a consultant with Public Impact. Her work addresses a wide range of education issues, including teacher quality, school finance, charter schools, early and alternative education, and student engagement. A former elementary school teacher, Ms. Doyle is an alumna of Teach For America and Education Pioneers. She holds a bachelor's degree in public policy from Princeton University, a master's of science for teachers from Pace University, and a master's degree in public policy from Duke University.

For additional information on AEI's education policy program, please visit www.aei.org/hess or contact Jenna Schuette at jenna.schuette@aei.org or 202.862.5809. For additional media inquiries, please contact Hampton Foushee at hampton.foushee@aei.org or 202.862.5806.

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