Published Online: August 12, 2013

Calculating Social-Impact Bonds

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Social impact bonds, also known as a pay-for-success loans, are loans that seek to achieve a positive social outcome, and reduce future costs by investing in prevention and intervention programs in the public sector.

This fall, Goldman Sachs and the investor J.B. Pritzker will put $1 million toward expanding a Utah school district's early-childhood program by 450-600 students through a social-impact bond. The idea is that students who go through the program are less likely to need expensive special-education services later in their academic careers. If successful, the venture would be the first investment of this kind to finance a public school program, according to officials.

How Does It Work?

Pupils are tested at the beginning of the program to identify which ones are likely to need special education in the future. For every child that fits this description—but later scores at grade level—a savings equal to the avoided costs is recorded and paid back to the investors. Students who complete the preschool program are tested annually to calculate avoided costs. If and when the loan is paid off, additional money saved is divided between the district and investors, up until the point that students complete 6th grade.

Calculate Potential Savings

Reporter: Sean Meehan | Editor: Sean Cavanagh | Design & Programming: Chienyi Cheri Hung

Vol. 32, Issue 37
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