New York-based Goldman Sachs and a private investor are lending up to $7 million to the United Way of Salt Lake to expand a preschool program for the poor as part of a new financing technique meant to improve social welfare.
Typically government money, philanthropies, and parents fund early-childhood education, but this so-called social-impact bond ties the fortunes of the investors to the success of the Utah High Quality Preschool Program, Alicia Glen, head of Goldman’s urban investment group, told The New York Times. It is the first of its kind in early-childhood education, Goldman reported.
The benefit is that taxpayers do not have to front the money; the investors earn public relations points.
“We’re creating something sustainable that has a focus on returns,” said Chicago investor J.B. Pritzker, who is partnering with Goldman in the endeavor, told the paper. “This titillates in business and engages me.”
The lenders will offer the money alongside a 5 percent interest rate, which is paid along with the principal if deemed successful.
The success of the preschool program is determined by cost savings for children who might otherwise use special education or remedial services during their time in early-childhood education and beyond, a savings of $2,607 per child per year, according to the United Way of Salt Lake.
A version of this news article first appeared in the Early Years blog.