Outcome-Based Federal Student Aid Model: A Proposal for Pay-for-Success Funding – RESEARCH AUGUST 2025

August 21, 2025 Di Tran

Executive Summary

Problem: Federal student aid currently pays upfront for enrollment, leading to wasted taxpayer dollars when students drop out and to funding of programs with poor outcomes. Cosmetology training is a prime example, where billions in aid yield low graduation rates and near-poverty wages for graduates.
Solution: Shift to an outcome-based funding model: government reimburses education costs only upon student success (course completion, graduation, licensure, and employment). This aligns incentives to ensure public funds only pay for results in the public interest.
The new model reduces waste, incentivizes higher completion and job placement, and expands aid access to high-demand short programs (e.g. nail technician courses) currently ineligible under standard rules. Under this proposal, private sponsors (banks, credit unions, or parents) or schools front the tuition, and federal aid is disbursed when the student meets outcome milestones – guaranteeing a return on investment in education.
This approach is inspired by successful employer tuition assistance programs where payment is deferred until course completion with satisfactory grades. Adopting it federally will ensure taxpayer dollars fund outcomes, not just enrollment, addressing Congressional concerns about waste and student success.

Background: Problems with the Current Aid Model

Funding Upfront, Outcomes Last: Federal Title IV aid (grants and loans) is currently disbursed based on enrollment, not completion. Institutions receive funds when students start classes, even if many never finish or fail to find gainful employment. This pay-for-enrollment model has resulted in:

Wasted Taxpayer Resources: Students can enroll and take aid, then drop out or fail to attain a credential, meaning federal dollars have been spent without a public benefit. For example, cosmetology schools have notoriously low on-time graduation rates – on average, under 30% of students graduate on time, and even with an extra year, barely two-thirds ever graduate. Yet these programs collectively received over $1 billion in federal grants and loans in 2019–20.
Poor Return on Investment: Many federally funded programs yield low earnings for graduates. Cosmetology training is emblematic: three years after completing a cosmetology program, the average graduate earns only about $16,600 per year – roughly the poverty level, and even lower than the average high school graduate earns. Meanwhile, cosmetology students borrow over $10,000 in federal loans on average, and cosmetology programs rank among the top five fields for producing student loan borrowers despite those low earnings. This mismatch leads to high debt-to-income ratios, loan defaults, and reliance on government relief. In short, the government is investing in programs with low economic payoff, effectively subsidizing education that often does not lead to self-sufficient employment.
High Dropout and Default Rates: Because funding is not tied to success, schools have little financial incentive to ensure students complete. Cosmetology programs “rarely graduate students on time, delaying—or even blocking—aspiring cosmetologists’ entry into the workforce”. Fewer than 2/3 of students even graduate within 150% of program time. Those who drop out often still carry debt without improved earning power, a recipe for loan default. Taxpayers ultimately absorb the cost through loan forgiveness or defaults. (Notably, the Department of Education recently forgave loans for 28,000 students of a failed beauty school chain due to deception and poor training quality – a stark illustration of what happens when aid flows freely upfront.)
Misaligned Incentives and Regulatory Burden: To protect its upfront investment, the government relies on complex regulations (accreditation standards, financial oversight, gainful employment rules, etc.) that focus on inputs rather than outcomes. Yet despite these rules, many low-performing programs persist, and meaningful accountability is lacking. The current accreditation-centric system measures whether a school meets certain process standards, but only one of ten federal accreditation criteria deals with student outcomes. This input-driven oversight has not consistently improved quality or innovation in higher ed. Lawmakers across the spectrum recognize that tying funding to actual results would be far more effective at ensuring quality.

Short Programs Excluded: Another problem is that many short, job-focused programs (under 600 clock hours) are ineligible for federal aid under current rules. For instance, a 450-hour nail technician program or a 300-hour shampoo styling course cannot receive Pell Grants and can only access federal loans under very limited conditions. This rule was meant to prevent abuse, but it also blocks aid from high-demand, shorter trainings that can quickly place graduates into jobs. In the beauty industry, this has led to skewed outcomes:

Over-funded Long Programs, Under-performing Outcomes: Cosmetology (typically 1500 hours and aid-eligible) has been heavily funded for decades, yet only a fraction of those who train actually enter or remain in the workforce. In Kentucky, for example, there were roughly 4,350 people employed as hairdressers/cosmetologists in 2022, despite many times that number holding cosmetology licenses – implying that well under 25% of licensed cosmetologists are working in the field. This low utilization rate (and high attrition from the profession) is not publicized, but it signals that Title IV funds are often financing education that does not translate to careers.
Under-funded Short Programs, Unmet Demand: By contrast, shorter programs like nail technology (450 hours in KY) produce graduates with near-100% employment rates in their field, yet these programs have not been federally fundedlouisvillebeautyacademy.net louisvillebeautyacademy.net. The demand for licensed nail techs is so high that salons in some areas are unable to fill positions – Kentucky recently had only ~160 active manicurists statewide, versus hundreds of open jobslouisvillebeautyacademy.net. It’s estimated the state needs 500–700 more nail technicians immediately to meet industry demandlouisvillebeautyacademy.net louisvillebeautyacademy.net. However, aspiring nail techs must find private financing or pay out of pocket for school, since they can’t tap into Pell Grants or federal loans. This barrier likely limits enrollment in these high-opportunity courses, exacerbating labor shortages in the trade.

Summary: Federal aid is effectively over-investing in long programs with poor outcomes and under-investing in short, in-demand programs. The current “all-or-nothing” eligibility criteria (600+ hours and accreditation required) fail to account for actual outcome differences between programs. This calls for a new model that bases funding on what programs deliver for students and the public.

Proposed Solution: Pay-for-Outcome Funding Model

Core Idea: Shift federal student aid from enrollment-based disbursement to outcome-based disbursement. In an outcome-based model, the Department of Education (DOE) pays tuition assistance only when a student achieves specified educational milestones or outcomes – for example, completing a semester, graduating from a program, earning a required license, or securing employment in the field. Instead of fronting money at enrollment with no guarantee of return, the government would “invest” in the student’s education only upon success, thereby guaranteeing that taxpayer dollars produce the intended result (a credentialed, employable graduate).

Under this model:

No Completion, No Payment: If a student drops out or fails to complete the term/program, the institution (or its private funding partners) do not receive federal money for that student. Taxpayer funds are expended only on successful outcomes, not on failed attempts. This dramatically reduces waste from paying for students who never finish or benefit. It forces education providers to share in the risk of failure – giving them a strong incentive to support student persistence and quality training. As one education expert put it, “Funding mechanisms should ultimately reward programs that achieve a strong return on investment and defund programs that don’t work.” Our proposal operationalizes this principle at the individual student level.
Use of Private “Sponsors” for Upfront Costs: Since schools still need operating revenue to teach students, the model brings in third-party sponsors (or a deferred payment system) to bridge the timing gap. Several options exist:
- Partnered Lending: Private financial institutions (local banks, credit unions, or specialized education lenders) provide short-term tuition loans or lines of credit to students/schools. These loans cover the cost of instruction at the start. Crucially, they are contingent loans – if the student successfully completes the course or program, the federal aid will be released to fully repay the loan. Essentially, the lender is advancing the money against a future outcome-based payment from DOE. Because the government reimbursement is guaranteed upon success, lenders can offer low-interest or no-interest financing, and they bear minimal risk for students who do succeed.
- Deferred Tuition Billing: Alternatively, institutions could allow students to enroll without upfront payment and defer billing until the end of the term or program. This approach is already used in many employer-sponsored tuition assistance programs. For example, the University of Phoenix’s “Deferred Direct Bill” program lets approved companies’ employees take courses with no upfront cost; the university bills the employer after the employee successfully completes the course with a passing grade. In our model, a similar arrangement could be made where the school defers tuition collection until the student finishes, then directly bills the federal aid program. (Many smaller schools might prefer a bank partner to provide funds immediately, but larger institutions or well-capitalized training providers could manage a deferred billing cycle.)
- Parent/Guardian Sponsorship: Students with willing family support could have a parent or guardian pay the tuition initially (or co-sign a short-term loan). Upon the student’s successful completion, the federal program reimburses the parent or pays off the loan. This leverages personal networks while ultimately making the education free or low-cost to the student upon success.
Milestone Payments: Federal reimbursement can be structured in tranches tied to milestones:
- End-of-Term Payments: For longer programs (e.g., multi-semester or year-long programs), aid could be disbursed at the end of each term that the student successfully completes. This mirrors employer tuition models where, for instance, after each semester with passing grades, the company reimburses tuition. It ensures continuous progress is rewarded. A student would not receive aid for an incomplete term or failed courses, but as long as they meet academic standards each term, that term’s funding is provided. This encourages persistence term by term.
- Graduation/Completion Payment: A substantial portion of the aid (or for short certificate programs, perhaps the full amount) would be paid upon program completion. Making graduation a condition to unlock federal funds squarely addresses the dropout problem: colleges would not want to lose that revenue, so they would put far more effort into counseling, tutoring, and otherwise helping students finish. It also weeds out programs that can’t keep students engaged to the end.
- Licensure and Employment Bonuses: Especially for vocational fields like cosmetology, merely finishing school isn’t the ultimate goal – passing the state licensing exam and obtaining employment are critical outcomes. The model can include bonus payments or additional reimbursement increments for those outcomes. For instance, the government might reimburse 50% of the tuition at graduation, then an additional 25% once the student passes a recognized licensing or certification exam, and the final 25% when the student secures a job in the field (or after a few months of documented employment). These “pay-for-performance” bonuses ensure the program is not just graduating students, but truly preparing them for the workforce. Schools would effectively be rewarded for graduates who become licensed professionals and get hired.
Such a staged payment approach is akin to how certain workforce grants operate (with placement benchmarks) and echoes social impact “pay for success” contracts, where investors are repaid by government only if target outcomes are met. It directly aligns funding with the public interest: the government’s investment is returned in the form of a productive worker contributing to the economy, which is the end goal of job-training aid.
Removal of Accreditation Barrier (Quality via Outcomes): In exchange for rigorous outcomes-based accountability, the proposal suggests loosening or removing the requirement that an institution be accredited by a traditional accrediting agency to access Title IV funds – at least for approved programs under this model. Accreditation has served as a gatekeeper for quality, but it is an imperfect proxy that often focuses on inputs and processes. Under our model, quality assurance is enforced by the outcomes themselves:
- Programs that cannot produce graduates who successfully finish and pass exit exams would simply not get paid and would be naturally pushed out of the market if they consistently fail to deliver results. This is a far more direct form of accountability than waiting for an accreditor to sanction a subpar school years later.
- Requiring accreditation adds years of delay and high cost for new or niche training providers to offer federal-aid-eligible programs. Many small, innovative vocational academies (in fields like beauty, tech bootcamps, etc.) forego accreditation due to the burden, meaning their students can’t get aid. By removing the accreditation requirement for programs participating in outcome-based funding, we open the door to more flexible, market-responsive education providers – as long as they prove themselves by meeting outcome targets. The focus shifts from bureaucratic compliance to measurable results.
- Basic safeguards would remain: a provider must be state-licensed or otherwise authorized to offer the training (ensuring baseline standards), and if applicable, the program’s curriculum should align to any external licensing exams or industry certifications. Essentially, state approval + outcome metrics would replace accreditation as the quality filter. Given that in 95%+ of cases cosmetology programs simply teach to the state-required hours and curriculum, the state licensing exam is a good measure of whether the education was delivered adequately. Schools that can’t get students to pass state boards would not last under this funding scheme.
Data Reporting and Verification: A robust tracking system would be needed so DOE knows when to pay. Schools would report student progress and completion through a secure portal. State licensing boards could report exam results. Employment could be verified through data matches with state employment records or employer attestations. Federal payments would trigger once outcomes are verified. This builds a rich dataset of program success rates, informing students and policymakers which institutions truly deliver. It dovetails with the Department’s College Scorecard and gainful employment metrics, but puts financial teeth behind those metrics in real time.

Example Scenario: To illustrate, consider a 450-hour Nail Technician diploma program costing $4,000 in tuition:

A prospective student, Jane, is admitted to XYZ Beauty Academy. Under outcome-based aid, Jane does not receive a Pell grant or loan upfront. Instead, XYZ Academy has partnered with a local community bank. The bank extends a conditional tuition loan of $4,000, disbursed directly to the school so Jane’s education is paid for.
Jane completes the 450-hour course successfully and meets all requirements for graduation. Immediately upon completion, the academy submits proof of Jane’s completion to DOE. The DOE then disburses $4,000 to repay the bank for Jane’s loan (the funds could flow via the school or directly to the lender). Essentially, the federal aid now pays for Jane’s education because she graduated.
Since XYZ Academy’s program prepares students for the state licensing exam, Jane takes the Kentucky Nail Technician exam the next month. She passes and becomes a licensed nail tech. The school or state board reports this outcome. DOE releases an additional outcome payment – say $500 – to XYZ Academy as a reward for producing a licensed graduate. This incentivizes the school to ensure students not only finish, but also pass their boards.
Within 3 months, Jane secures a job at a local salon, earning ~$18/hour. Six months into employment, her status is verified (perhaps through wage records). At this point, another incentive payment could be issued – for example, $500 to the school (or even to the lender or Jane as a hiring bonus) as a reward for achieving the ultimate goal of gainful employment. Jane’s initial loan is already paid off by the federal reimbursement, so she starts her career debt-free.
If Jane had dropped out halfway through, XYZ Academy would not receive the $4,000 from DOE. The bank would then seek repayment from Jane (and any co-signer) for the loan. It’s likely the school might also refund a portion of unused tuition to reduce her debt burden. In this scenario, the loss is borne by the private parties – giving both the school and bank strong incentives to screen and support students effectively. XYZ Academy had “skin in the game” to help Jane succeed; the bank only extended the loan believing Jane and the program were likely to succeed. All parties share the common goal of Jane’s graduation and employment.

This example shows how funds flow and how incentives align under the pay-for-success model. The government pays only when the mission is accomplished. Students gain access to education without upfront cost, but with accountability to complete. Schools and lenders collaborate to support the student, because their reimbursement depends on it.

Benefits of the Outcome-Based Model

Implementing this performance-driven funding approach would yield multiple benefits:

Taxpayer Protection & ROI: Every dollar of federal aid would purchase a real outcome – a graduate, a new skilled worker – rather than funding attrition and inefficiency. This is a fundamentally more efficient use of public funds. Currently, large sums fund programs where graduates earn below-poverty wages or never work in the field, which is effectively a public subsidy producing little societal return. Under the new model, if a program can’t produce employable graduates, it doesn’t consume federal money. Conversely, programs that excel and produce graduates in high-need fields can attract more federal support. The overall effect is to reallocate education dollars toward high-value outcomes. It’s akin to moving from paying contractors by the hour to paying them for completing the job: it minimizes waste and incentivizes effectiveness.
Higher Completion and Placement Rates: Schools will focus intensely on student success. Since their revenue depends on it, institutions will invest in better teaching, mentoring, tutoring, and support services to ensure students reach the finish line. They may also become more selective in admissions or require readiness bootcamps, ensuring students are prepared to succeed before starting aid-funded programs. We can expect dropout rates to fall and on-time graduation rates to improve, as the misaligned incentive of getting paid regardless of outcomes is removed. Furthermore, schools will bolster career services and employer partnerships, because helping graduates land jobs could be tied to final payments. In essence, colleges would adopt a mindset akin to “investors in student outcomes,” aligning their operations to maximize completions and job placements. This addresses historically high attrition in programs like cosmetology, where previously the school had no financial penalty if a student withdrew after aid disbursement. Now, retaining and graduating that student is paramount for the school’s bottom line.
Student Benefits – Access with Accountability: For students, this model can be empowering and protective. First, it removes the upfront financial barrier – you don’t need money or credit to start school, which opens doors for low-income students. You also avoid taking on large debt blindly. If you succeed (graduate and get licensed/employed), you effectively received an education paid by the government as an investment in you. If you don’t succeed, you might incur some obligation to a private lender, but the scale is smaller (e.g. a few thousand dollars for a short program, versus dropping out of a longer program with tens of thousands in federal loans). Moreover, knowing the school only gets paid when you succeed gives students confidence that the institution has a strong incentive to help them – you’re not just a tuition source; your success is their success. It transforms the school-student relationship into more of a partnership. Students also would likely get more individualized attention in an outcome-focused environment, improving their learning experience.
Addressing Labor Shortages in Key Trades: By extending federal aid eligibility to shorter-term vocational programs (via this alternative outcome-based pathway), we can rapidly grow the workforce in fields that need talent. The beauty industry is one example – funding 450-hour nail tech courses based on outcomes could quickly produce hundreds of new licensed nail technicians to fill salon vacancies. This principle applies broadly: healthcare aide programs, commercial truck driving courses, IT certification bootcamps, manufacturing tech training, and many other sub-year credentials could scale up. Employers nationwide are struggling to hire workers with specific skills, while many Americans need faster, cheaper pathways to good jobs. Outcome-based aid provides a mechanism for federal funding to support these shorter skilling routes responsibly. Congress has even moved in this direction with “Workforce Pell” legislation (to allow Pell Grants for 150–600 hour programs) but only for those with strong outcomes (e.g. programs must have over 70% completion and job placement rates)nasfaa.org. Our model aligns with this approach and goes a step further by conditioning aid on each individual student’s success, not just on aggregate program performance. In essence, it is “short-term Pell with performance guarantees.”
Encouraging Innovation and Competition: Loosening accreditation requirements in favor of outcome accountability opens the door to new education providers – including employer-run academies, industry certification programs, and community-based training organizations – to compete for students and federal dollars on a level playing field. If they can deliver equal or better outcomes than traditional colleges, they can thrive under this model. This can drive down costs (as providers innovate to deliver training more efficiently) and improve quality through competition. Traditional schools would also be pushed to innovate and not rely on guaranteed upfront federal money. Paying for outcomes “promotes data-driven decision-making and empowers an inclusive governance process…while unleashing the entrepreneurialism of the social sector,” as one policy memo noted. It shifts accountability from box-checking to truly delivering value to students. Over time, this could transform sectors like cosmetology education – which has been called a “failed model of professional development” under the status quo – into a leaner, results-focused ecosystem.
Reduced Need for Heavy Regulation: When money flows only on proof of success, many existing regulations (designed to weed out or penalize bad outcomes) can be streamlined. For instance, the pending gainful employment rule aims to cut off aid to cosmetology programs with graduates earning less than the typical high school graduate. Under our model, such programs would automatically struggle to receive funds since their students wouldn’t meet the employment outcome triggers. Likewise, rules like the 90/10 revenue cap for for-profit colleges, or monitoring of cohort default rates, become less critical when students are not taking large loans unless they are completing and earning. The focus of oversight can shift to verifying outcomes and auditing any fraudulent reporting, rather than micromanaging instructional methods. Honest schools have nothing to fear – they get rewarded for success. Dishonest or low-quality schools cannot prosper because they won’t get paid without real results. This is a more organic form of accountability that could allow a lighter touch from regulators in the long run.

Potential Challenges and Mitigation Strategies

While the proposed model offers many benefits, it represents a significant shift. Anticipating challenges and planning mitigations will be crucial:

Upfront Financing Risk: If a student fails or drops out, the party that fronted the tuition (bank, school, or parent) could be left unpaid. This risk might make lenders cautious or could leave dropouts with private debt. Mitigation: Start with fields that have historically high completion and licensure rates (or that are short enough that risk is inherently limited). The government could offer partial guarantees or an “outcome insurance” fund for lenders – for example, reimbursing a portion of losses if a student completes over half the program but doesn’t finish, or if a school suddenly closes. This would encourage lenders to participate while still not rewarding complete failure. Schools can also share risk: for instance, institutions might agree to repay some portion of a student’s loan if the student drops out, giving schools a financial stake in only enrolling capable, committed students. Additionally, careful vetting of programs (ensuring they have strong curricula and support services) in the pilot phase will minimize failure rates.
Ensuring Integrity of Outcomes: Tying funding to outcomes creates pressure to meet metrics, which could tempt some actors to game the system – e.g. lower academic standards to graduate everyone, or even falsify outcome data. Mitigation: Use independent outcome verification wherever possible. Reimbursements for licensure can require the official exam pass data from state boards (schools cannot fake that). Employment outcomes can be verified via third-party data (such as unemployment insurance wage records or employer confirmations). Completion should be audited – DOE could randomly audit student records to ensure that “completions” reflect real academic achievement. Moreover, the inclusion of external licensure and job outcomes means a school can’t just churn out unqualified graduates and get paid; those grads have to actually succeed outside the school. This significantly reduces the incentive to lower standards. If anything, schools have incentive to maintain or raise standards so students pass tough external tests. Strong penalties (like barring a school from the program) for any discovered fraud will also deter misconduct.
Cash-Flow for Institutions: Schools, especially smaller ones, might struggle to operate if they have to wait until after student outcomes to receive funds. Mitigation: Encourage partnerships with financial institutions to handle the cash-flow, as described. Government can also expedite payments – for example, instead of waiting until an annual true-up, make rolling disbursements as soon as each student hits a milestone. In a pilot, DOE might consider advancing a small portion of the grant (e.g. 10-20%) at enrollment as a baseline, with the remainder on completion; this hybrid model could help schools adjust gradually. Over time, as data confirms high completion rates, schools will be able to predict revenue and lenders will feel more secure fronting the money. Also, by focusing initial implementation on shorter programs (weeks or months long, not years), the delay between instruction and payment is relatively short.
Student Equity and Access: There’s a concern that schools or lenders might become too risk-averse, favoring students who seem most likely to succeed and turning away those who might need more support (often low-income, first-generation, or other disadvantaged groups). Mitigation: Design the program to incentivize serving at-risk students, not just the “sure bets.” For instance, outcome metrics can be adjusted for student demographics or schools can receive a bonus for successfully graduating Pell-eligible (low-income) or other underrepresented students. Since the model’s goal is to improve outcomes for precisely those groups (who disproportionately attend programs like cosmetology), it’s important to include them. Outreach and support programs (tutoring, mentoring, childcare for students, etc.) can be funded or encouraged, so that schools have the tools to help all students succeed. The pilot can also include a diverse set of institutions (urban, rural, serving different populations) to ensure broad applicability. Fundamentally, if a student shows commitment, the model aims to give them a chance by removing financial barriers, and then surround them with a success-oriented framework.
Regulatory Changes: Implementing this model at scale likely requires changes to federal law (the Higher Education Act) and various regulations. Mitigation: Begin with a controlled Experimental Sites initiative (the Department has authority to waive certain aid rules for pilot programs). Demonstrate results that can inform the HEA reauthorization. Engage lawmakers early – the concept of “pay for outcomes” has supporters in both parties (it appeals to fiscal conservatives and social reformers alike). Indeed, experts have argued for revamping aid to a pay-for-outcomes model to spur innovation and accountability. Highlight how this model can work hand-in-hand with other proposals (like short-term Pell and gainful employment) to achieve their goals more directly. Building a coalition of support among workforce development advocates, education reformers, and community college leaders will help pave the way for permanent legislative change.
Administrative Complexity: Tracking individual outcomes and handling staggered payments is more complex than the current upfront disbursement process. Mitigation: Invest in modernizing data systems. The pilot can start semi-manually, but long-term, DOE would develop an automated platform for schools to upload outcome proofs and trigger payments. Using unique student identifiers, integration with licensing databases, and secure data matching with wage records can largely automate verification. The additional administrative effort is justified by the much greater effectiveness of spending. Moreover, some existing administrative burdens might lessen (for example, no need for complicated return-to-Title-IV calculations when a student withdraws, since funds were not disbursed yet). We can also leverage partnerships with state agencies and possibly third-party intermediaries (like Social Finance or other outcome-based financing experts) for technical assistance in setting up these mechanisms.

Conclusion and Recommendations

This business plan lays out a bold reimagining of federal student aid: one that pays for outcomes rather than attendance. By implementing a pay-for-success funding model, the Department of Education and Congress can tackle two critical issues simultaneously – the waste of taxpayer dollars on programs with poor outcomes, and the low completion/employment rates of many students in the current system. The proposal directly addresses the concerns of policymakers about “wasting taxpayer money” and “high drop-out rates” by creating a structure where money flows only when a student stays on track and achieves a meaningful result.

Key recommendations to move forward:

Launch a Pilot Program: Use the Experimental Sites authority to pilot outcome-based aid with a small number of institutions (for example, a group of cosmetology schools and community colleges offering short technical programs). Waive the 600-hour and accreditation requirements for these sites, and allow federal aid to be disbursed upon completion and other milestones. Closely monitor outcomes (completion rates, licensing pass rates, job placements, student debt incurred, etc.) and compare to similar programs under the traditional aid model. The pilot data will provide proof of concept and help refine the details.
Engage Financial Partners: Facilitate agreements with local banks, credit unions, or state workforce agencies to serve as financing partners in the pilot. The Department can convene roundtables with financial institutions to explain the model and encourage participation. Perhaps offer a modest incentive or guarantee for the first cohort of loans to ease concerns. Additionally, explore working with social impact investors – similar to how Massachusetts did with a “pay for success” job training bond – where private capital funds the training upfront and is repaid by the government when outcomes are met.
Incorporate Outcome Funding in HEA Reauthorization: As Congress works on reauthorizing the Higher Education Act, include provisions to scale outcome-based funding. For instance, create a new Title IV program or modify the Pell Grant program to allow “Outcome Pell” for non-traditional programs, with requirements for 70%+ completion and placement (similar to current Workforce Pell bill drafts)nasfaa.org. Provide statutory authority for DOE to make delayed disbursements based on verified outcomes. Also, adjust the institutional eligibility criteria so that proven high-outcome programs (even if not accredited in the traditional sense) can receive funds.
Protect Students During Transition: To ensure students are not negatively impacted, set guidelines for the interim financing: cap any interest rates on outcome-contingent loans to a low level, or have interest covered by the eventual federal payment so students owe nothing if they succeed. Ensure students are fully informed about how their funding will work (transparency that “your tuition is being covered by a sponsor and will be paid by the government when you complete”). Also, maintain some safety nets – for example, if a student drops out due to an extreme circumstance, perhaps allow a one-time retrofit to traditional aid or some debt relief to avoid punitive outcomes.
Transparency and Data Sharing: Make the results of outcome-based programs transparent to all stakeholders. Publish data on graduation rates, job outcomes, and taxpayer cost per outcome for the pilot programs. This will build public support if, as expected, the cost per successful graduate is much lower than in the current system. It will also help identify which programs or fields are most suited to this model. Over time, such data can feed into a broader “value of education” scorecard, guiding students to programs that reliably lead to good outcomes (and now backed by outcome-based aid).

In conclusion, the model proposed by Di Tran and Louisville Beauty Academy – essentially “don’t pay until the student succeeds” – could be revolutionary. It ensures a 100% guarantee of a result for each taxpayer dollar spent, something unheard of in traditional education funding. Given the data on cosmetology’s challenges and the pressing workforce needs in trades like nail technologylouisvillebeautyacademy.net louisvillebeautyacademy.net, there is no better time to pilot this approach.

By implementing outcome-based aid, the federal government would become not just a funder of education, but an investor in outcomes – essentially purchasing the completion of degrees and certificates, rather than seats in a classroom. This strategy will yield real returns: a more skilled workforce, more efficient use of public funds, and expanded opportunities for students in programs that were previously deemed too risky or too short for aid.

The current scrutiny of Title IV-funded programs (like the Department of Education’s renewed enforcement of gainful employment rules for cosmetology) underscores that the status quo isn’t working. Rather than simply tightening the noose on poor-performing programs after the fact, our proposal offers a proactive solution: fund only success up front. It’s a paradigm shift that carries some execution challenges, but the potential upside – in accountability, student outcomes, and taxpayer savings – is enormous.

With careful implementation, outcome-based funding can transform federal student aid from a system that often subsidizes failure into one that rewards success. It creates a win-win-win scenario: students win by getting education that leads to real jobs (or else not incurring debt); institutions win by earning funding through good performance and building a reputation for quality; and taxpayers win by knowing their money genuinely helped create a skilled graduate contributing to the economy. In sum, this is a model that truly aligns incentives in higher education finance and represents a groundbreaking step toward results-driven education policy.

REFERENCES

Congressional Research Service. (2025, June 5). Amendments to the Higher Education Act in FY2025 Budget Reconciliation Legislation (CRS Report No. R48560). Retrieved from https://www.congress.gov/crs-product/R48560

Young, S. (2024, May 4). A BILL – FINISH Act, pay-for-success initiative under Title IV. Retrieved from https://www.young.senate.gov/wp-content/uploads/FINISH-Act-2024.pdf

New American Business Association. (2025, May 6). Reforming Federal Aid and Accreditation: Lessons from Louisville Beauty Academy. Retrieved from https://naba4u.org/2025/05/reforming-federal-aid-and-accreditation-lessons-from-louisville-beauty-academy/

Federal Register. (2024, August 12). Applications for Selection as a Performance Partnership Pilot. Retrieved from https://www.federalregister.gov/documents/2024/08/12/2024-17895/applications-for-selection-as-a-performance-partnership-pilot-performance-partnership-pilots-for

Louisville Beauty Academy. (2024, July 18). Financial Aid Options and Payment Model at Louisville Beauty Academy [Webpage]. Retrieved from https://louisvillebeautyacademy.net/financial-aid-options-and-definition/

America Forward. (2021). Pay-for-Success Policy Platform [PDF]. Retrieved from https://www.americaforward.org/wp-content/uploads/2021/05/Pay-for-Success-Policy-Platform-Ratified.pdf

Young, S. (2025, June 10). Louisville Beauty Academy’s Model vs. Typical U.S. Beauty Schools: A Comprehensive Comparison. New American Business Association. Retrieved from https://naba4u.org/2025/06/louisville-beauty-academys-model-vs-typical-u-s-beauty-schools-a-comprehensive-comparison/

Louisville Beauty Academy. (2025, August 8). Fast-Track & Debt-Free: How Louisville Beauty Academy Delivers the Double-Scoop—Save Big and Start Earning Sooner. Retrieved from https://louisvillebeautyacademy.net/fast-track-debt-free-how-louisville-beauty-academy-delivers-the-double-scoop-save-big-and-start-earning-sooner-research-august-2025/

Viet Bao Louisville KY. (2025, May 27). Why Most Beauty Schools Push Cosmetology—And Why Louisville Beauty Academy Does the Ethical Opposite – RESEARCH 2025. Retrieved from https://vietbaolouisville.com/2025/05/why-most-beauty-schools-push-cosmetology-and-why-louisville-beauty-academy-does-the-ethical-opposite-research-2025/

Viet Bao Louisville KY. (2025, June 19). Research 2025: Louisville Beauty Academy and Di Tran – University: A Pioneering Model for the Future of Education. Retrieved from https://vietbaolouisville.com/2025/06/research-2025-louisville-beauty-academy-and-di-tran-university-a-pioneering-model-for-the-future-of-education/

Louisville Beauty Academy. (2024, February 18). Beauty School Accreditation Myths [Tag collection]. Retrieved from https://louisvillebeautyacademy.net/tag/beauty-school-accreditation-myths/