Social Impact Bond to Finance Early Education

Creating a Model to Address Social Challenges Without Tax Dollars

A strong preschool education is more frequently being recommended by experts as a starting path for successful students. But how can new programs be introduced in communities that increasingly face limited resources? One innovative way is through a creative method of financing — the social impact bond.

In August 2013, Goldman Sachs collaborated with United Way of Salt Lake and J.B. Pritzker to create the first social impact bond to finance early childhood education. The partnership finances up to $7 million, of which Goldman Sachs has committed $4.6 million, to provide a high-impact preschool program for as many as 3,500 children. In the fall of 2013, about 600 children attended preschool as a result of the initial $1 million investment in the program.

The program seeks to increase school readiness and academic performance among 3- and 4-year-olds to reduce the need for remedial and special education services when the children grow older. The associated cost savings will be used to repay the loans for the high-impact and targeted curriculum at the Utah High Quality Preschool Program. The innovative program has the potential to become a model for addressing social challenges by leveraging private capital rather than taxpayer dollars.

This investment is what is known as a “double bottom line” investment. It makes sound financial sense while simultaneously making a powerful social impact. As investors, we will only earn a return of principal and interest on the loan if the preschool program is successful in preparing children to start kindergarten and reducing the number of children that need special and remedial education. If the preschool program succeeds, taxpayers could yield significant net savings beyond payments to investors.