Bulls, Blockchain, and the Case for a New Educational Paradigm.

What can our education systems learn from Wall Street and Silicon Valley?

Kindergarten, one day perhaps.

The Plot: An alarmingly growing global scarcity in educational funding and resource deployment

Our educational landscape is teetering on the edge of a full-blown crisis, and the numbers paint a grim picture. On one side, students are drowning in debt, with U.S. student loans ballooning to over $1.5 trillion. On the other side, the system itself is fraying at the seams. A staggering 44% of teachers report feeling burned out, and 35% say they're likely to quit within the next two years. The pipeline for new teachers is drying up, exacerbated by the fact that 78% of educators cite low pay as a serious issue. Meanwhile, 80% of teachers are shouldering extra work due to unfilled job openings in their districts, and a jaw-dropping 84% are digging into their own pockets for basic classroom supplies. Outside of the U.S. is not particularly encouraging either. If we don't act now, we will quickly find ourselves on the brink of a future where quality education becomes a rare commodity, accessible only to the privileged (some may say we are already there!). But how do we do that in a society where resources are increasingly scarce, nothing but the bottom line is valued, and the focus is often short-term gains over long-term sustainability?

One growing trend in Education is the employment of Income Share Agreements. While ISAs offer a glimmer of hope, they also come with their own set of challenges, such as low consumer awareness (are they really a better option than traditional loans?), poor underlying performance (loanees have no skin in the game), and an ambiguous regulatory environment (ultimately limiting investor interest). Even if these challenges are addressed, we would nevertheless need a more holistic approach to financing education that goes beyond just university students.

The Proposal: Taking cues from Wall Street and Silicon Valley to enrich our educational systems (both figuratively and literally!) with a bit of financial wizardry and technological trickery.

Surprisingly perhaps, and despite what seems to be two sectors at complete odds - Education would do well to borrow some of Wall Street’s financial engineering acumen. Specifically, derivatives. In simple terms, derivatives are financial contracts whose value is based on an underlying asset, like stocks, bonds, or commodities. Essentially, they're agreements to buy or sell these assets at a future date. You're not buying the asset itself, but rather a contract that derives its value from that asset. Think of it as making an investment on the future price movement of something, without having to own it outright. So how are derivatives relevant to the world of education? Let’s break down some of the parallels:

1. Intrinsic Value and Time Decay

In derivatives, intrinsic value is a bet on future worth, and time decay affects the value as the option nears its expiration. Similarly, an ISA's value lies in the projected ROI based on a student's career trajectory, and as a student nears graduation, the risk decreases.

2. Volatility

In the financial world, volatility can make or break an investment. In education, the "volatility" could be the ever-changing job market. A sudden demand for AI specialists would skyrocket the value of ISAs for computer science students.

3. Strike Price and Exercising the Option

In derivatives, the strike price is the make-or-break point. In ISAs, think of the strike price as the income level where repayments kick in. "Exercising the option" happens when a student starts earning and repaying, fulfilling the ISA contract.

4. Hedging and Leverage

Just like options can hedge against market risks, ISAs can be pooled to diversify investment across various educational stages and disciplines. This provides a form of leverage where a small investment in a pool of kindergarten students (across various geographies, family income segments, regional educational competitiveness, etc.) could yield significant long-term returns.

5. Risk-Adjusted Returns and Dynamic Rebalancing

ISAs, structured to mimic derivatives, offer risk-adjusted returns. As students progress, smart contracts adjust the ISA terms, optimizing investor returns while ensuring students aren't burdened.

This may also be a good time to note that while Wall Street has faced criticism for issues related to transparency and equitable access, these are not necessarily intrinsic flaws that would carry over to the education sector, not if we ensure they don’t, that is. Enter Silicon Valley, the epicenter of technological ingenuity and the driving force behind the evolution and adoption of Blockchain technologies. Though not the birthplace of Blockchain per se, Silicon Valley has certainly been instrumental in pushing this tech into various industries. So what is Blockchain anyway? Blockchain is a digital ledger that securely records transactions across multiple sources (computers). Imagine it as a chain of digital "blocks" that contain transaction data, all linked and secured using cryptography. Unlike traditional databases that have a central authority, blockchain is decentralized, meaning no single entity has control over the entire chain. This makes it transparent and resistant to tampering, which is why it's often associated with cryptocurrencies like Bitcoin. Cryptocurrencies aside, Blockchain is also increasingly being used in many other sectors for secure and transparent record-keeping such as data protection, logistics, commerce, and more. Could Education be next in line?

Let’s consider the applications:

1. Smart Contracts

Smart contracts can automate ISA terms, making adjustments based on real-world metrics like job market demand.

2. Transparency and Compliance

Blockchain's transparent ledger would ensure compliance with financial regulations, making this complex system transparent and trustworthy.

3. Social Impact and Liquidity

The tokenization of ISAs allows for trading, providing liquidity to investors. Philanthropic investors could even earn social impact tokens, adding a layer of societal value to the financial model.

4. Decentralization

Unlike traditional databases, blockchain is decentralized, meaning no single entity has control, which adds an extra layer of security and fairness to the system.

5. Immutability

Once data is recorded in a blockchain, it can't be altered, ensuring that all transactions and agreements are permanent, further enhancing trust in the system.

The Takeaway: Mixing and matching radically different approaches to create a new paradigm in educational funding.

Imagine a world where Wall Street savvy and Silicon Valley smarts enrich not just their respective sectors but society at large, starting with our schools. It’s an opportunity to transform educational funding into a dynamic, risk-adjusted market that benefits everyone. It's not just a theoretical exercise; it's a blueprint for a future where the ROI is profoundly social. The pieces are all there; they just need assembling. The real question is, do we have the will to put them together?

Jonathan Meister

Sulingo, Founder