Refers to interest-free loans to students to cover tuition and sometimes living expenses. Learners are required to pay back the loans only if they complete their program and hit a certain income threshold. These loans are more commonly used for short-term training programs that are offered by higher education institutions or alternative providers that are not eligible for federal financial aid.

An example is the State of New Jersey’s fund established to offer outcomes-based loans to learners in certificate and other non-degree programs in high-demand fields. The program is called a “Pay it Forward Fund,” which is a reference to the fact that graduates’ loan payments are recycled back into the fund and used to support the next round of learners.

The nonprofit Social Finance has used this form of lending as part of its mix of investments since launching in 2011. The organization’s investment approach is dependent on improving measurable outcomes in education, economic mobility, health, and housing.

See Interest-free Loans