An Educated Guest

Ep. 12 | Affordable, Flexible, Outcome-based: A New Approach to Student Loans


Guest: Tess Michaels, Founder and CEO of Stride Funding

 

Todd Zipper, President of Wiley Education Services, welcomes Tess Michaels, Founder and CEO of Stride Funding. As student debt rises, borrowers are looking for other ways to fund their higher education. Todd and Tess discuss the details of outcome-based funding options and what it means for borrowers. Listen to their conversation on your favorite podcast platform.   

Topics Discussed:

  • The benefits of outcome-based funding options and how they rely on future cash flows and the ability to repay once employed 
  • How Stride is offering more than funding options; including academic, career, and mental health support to drive retention and positive outcomes for students  
  • Why the cost and value of education requires alignment across learners, education providers, employers, and finance providers 

Guest Bio

Tess Michaels is the Founder and CEO of Stride Funding, an alternate way to pay for higher education through outcome-based funding options such as income-share agreements and deferred tuition. Stride Funding provides flexibility for student borrowers by offering personalized rates, a simple application, and shorter repayment plans. 

Prior to Stride Funding, Tess worked at Vista Equity Partners as a Private Equity Associate and at Goldman Sachs as an Investment Banking Analyst. In 2020, she was included on Forbes’ 30 under 30 list for education. Tess received her Bachelor of Arts in Biology at the University of Pennsylvania, a Bachelor of Science in Operations Management at The Wharton School, and an MBA at Harvard Business School.  



View Transcript

Speaker 1:
You’re listening to An Educated Guest, a podcast that brings together great minds in higher ed to delve deeper into the innovations and trends guiding the future of education and careers hosted by the president of Wiley Education Services, Todd Zipper.

Todd Zipper:
Hello, this is Todd Zipper, the host of An Educated Guest. On today’s show, I speak with Tess Michaels the founder and CEO of Stride Funding. Stride Funding provides students an alternative way to pay for their higher education through outcomes-based funding options, such as income share agreements, deferred tuition and traditional loan programs. Prior to Stride Funding, Tess worked at Vista Equity Partners as a private equity associate and at Goldman Sachs as an investment banking analyst. In 2020, she was included on Forbes 30 under 30 lists for education. The key takeaways from today. First, 92% of private loans for degree programs require a co-signer and less than a quarter of applications have access to a credit worthy co-signer.

Todd Zipper:
Outcomes based funding options rely on future cash flows and ability to repay once employed. Second, Stride is offering more than funding options. Their business model and structure is also centered around wraparound support by working quality partners to help provide academic, career, and mental health support to drive retention and positive outcomes for students. And third, biggest theme in aligning cost and value of education requires alignment across learners, education providers, employers, and financial providers. Hello, Tess. Thank you for being here today on An Educated Guest.

Tess Michaels:
Of course. Todd, thank you for having me.

Todd Zipper:
Absolutely. So let’s start from the top. So tell us a little bit about your background and where your drive come from, especially with you tempting to revolutionize higher education.

Tess Michaels:
Absolutely. So I’ve always been so news. Growing up really focused on mission driven organizations. I grew up in Texas with, coming from a family of folks who moved to the US, pursuing higher education as a way to get access to economic mobility. And my first startup was an analytics company in the corporate social responsibility space. And I really saw the ability to do good while doing well. And after that, worked in finance for a number of years, did investing. Really enjoyed it, but personally just really missed operating and working on something I was pretty crazy about. And Stride actually happened very organically. I was a graduate student at Harvard. I was very much struck by the sticker price and realized a lot of my peers were in the same boat. And a lot of us were going through that same decision of, “Is it worth it to go back to school? And what are the outcomes going to look like and how do I pay for this, right?”

Tess Michaels:
Through that journey just intellectually became very fascinated with the idea of using financing as a way to align cost and value of education. And that was the initial spark for creating Stride. And it’s evolved a ton since, but in every part of the journey, I think student centricity and the idea that we really can shake up, how things have been done is definitely been what kept me energized and kept me going.

Todd Zipper:
Excellent. So let’s jump into higher ed. One of the first topics to surface is the cost relative to student loan debt. According to NerdWallet, one in eight Americans had student loan debt and according to Forbes, student loan debt is now an astounding $1.7 trillion. I also recently interviewed the former under secretary of education who reminded me that you really can’t eliminate student debt even in bankruptcy, right? So this is an issue, a big issue for our country. Most students need these loans to attend college, right? There’s no other way to do it. So how do you think we got here? Can you help us understand this problem that we’re facing as a country?

Tess Michaels:
Yeah, absolutely. I mean, it’s unbelievable. If you look at how fast tuition has risen compared to any other product in market, it is just astounding to see just how quickly it’s grown and also just how big the problem has really become. And I think some of the biggest issues we’ve seen are, first of all, it is amazing to have a country where we do have federal support, but at the same time the government is offering the same level of financial support regardless of the quality or outcomes of different programs. And so because of that, institutions can continue to increase their tuition year after year without much penalty, right? Or much pushback as far as the ability to get access to that, those tuition dollars. And on top of that, I think oftentimes students really have been given the narrative that in order to get ahead, getting a degree regardless of what that degree is, is the right method.

Tess Michaels:
And I think now a lot of what we’ve seen COVID do is really accelerate the viewpoint on what is the real ROI or value of education look like. And how do we think about that on a program by program basis and across the spectrum of degree and non-degree programs always focused on what does placement look like into great careers and great outcomes, and how do we really get more alignment across students, educational providers and financial providers. And I think that’s, at least one way to get us a step closer toward at least creating some accountability and also creating more accessibility to higher quality programs.

Todd Zipper:
Yeah. So let’s jump into the solutions that your company, Stride comes into play. So initially your company got my attention through its work in a product called the Income Share Agreement.

Tess Michaels:
Yes.

Todd Zipper:
I remember reading about this back in my studying economics days, 1955. Milton Friedman wrote an essay about this. And so it’s this idea that really hasn’t ever gone away, right? And it’s starting to take shape in the American higher education institution. I remember seeing it start to play out maybe seven or eight years ago around the coding bootcamp space, but in any case, can you really discuss for us what an ISA is? What does it look like? How are we using it in this country? And then you can jump into what Stride is doing around ISAs.

Tess Michaels:
Yeah, absolutely. So the fundamental concept is this idea of, how do we think about human capital, right? At the end of the day, we all go to school and pursue higher education to do even better than our families and to really be able to get access to really incredible careers. Right? And I think at the end of the day, what Income Share Agreements are trying to do is tie the structure of that financing to those future outcomes. And so instead of a traditional loan where there’s principal and interest and where students were accruing interest while they’re in school and during any periods of non repayment, in an Income Share Agreement structure, there’s no occurring expenses while they’re in school. And as soon as they graduate, they don’t start making any payments until they earn above a certain minimum income threshold, right? So a livable wage.

Tess Michaels:
And once they’re above that, those payments are actually a fixed percentage of income. So let’s just illustratively say it’s 4% of income over five years, right? So students can always budget. They always know what’s affordable, right? If they earn less, they pay less. If they earn more, they pay more. And that way they really tie your earnings to your outcomes in a way that we really haven’t seen in the financing market before. And that’s really where we started. And I will say the beauty of that is everyone’s really incentivized to help the student succeed. So at Stride, for example, we have all sorts of wraparound career support and we really see the educational institutions using this as a way to signal their strong outcomes. And so it naturally selects for providers that tend to also deliver on that promise toward really great placement.

Todd Zipper:
So I know that in addition to ISA is you work on other outcomes-based products. Can you talk also about how that plays out?

Tess Michaels:
Absolutely. So to me personally, I think the movement is really around this concept of outcomes based funding. And there are different product structures to get to the same goal, but the commonality of our entire product portfolio is every product has an income trigger, right? So that downside protection for students will be only start making payments once they earn above a certain amount, right? Once they’re gainfully employed. But with that being said, ISA is where our first product. Our largest product is actually a spin off of a retail installment contract. If you’ve seen what Affirm and Afterpay and all these other players have done in more of the consumer market, we brought that to education and offer this product called a Deferred Tuition Agreement, where essentially students only start making payments when they earn above that again, that threshold. And then it’s a fixed dollar amount that they pay every period.

Tess Michaels:
And now we’re working on our third product, which again has that same trigger built in but again, it’s focused around more of a traditional loan structure. And so again, that outcomes nature is really what’s interesting from a product perspective because you need to be able to price what that future cashflow looks like. But the other piece is really how you innovate on underwriting. Who can get access to the product? And I think that’s what personally gets me really excited is the idea that the product structure can be different and that’s definitely something that gets a lot of attention, but really what we want to get at is making sure that those who are typically left out of credit markets are able to get access to affordable products and happy to talk about that in a bit if you want.

Todd Zipper:
Let’s zoom out for a second and thinking about the… And we’re focusing mostly on the American Higher Ed System. People go to college, they get in some cases Pell Grants, they also get Federal Loans, right? This is hundreds of billions of dollars a year. There’s also private loans in the market. And so can you explain where ISA fit into the traditional higher ed system? And then also I’d mentioned earlier about boot camps and alternative credentials. They don’t access financial aid, a Title IV institutions is the other term that’s often used. How does that work, maybe frame where ISA this outcomes based funding model sits?

Tess Michaels:
Yes. So I’m going to walk through our degree programs and our non-degree programs separately because they have different types of products and a different path that students usually take when they’re comparing different financial options. So for your degree programs, typically what we always recommend to students is always take scholarships and grants first, right? Free money is the best type of money. Then take your subsidized federal funding, which typically taps out at a certain amount, right? And then after that, where students will typically have for a degree program, let’s say another $15,000 to $20,000 of borrowing left is when left they’re comparing a un-subsidized federal loan like a Grad PLUS loan, which typically has origination fees and is slightly more expensive than that subsidized product versus the private loans which you alluded to. And then your other outcomes based funding products that can include income share agreements, deferred tuition agreements, et cetera.

Tess Michaels:
And the way we typically think about it is, the biggest issue we oftentimes see with private loans, especially in the degree market is 92% of private loans require a co-signer. And what’s been shocking to see is less than a fourth of students actually have access to a credit worthy co-signer. So there’s just this massive gap in the market of students who just aren’t able to get access to affordable financing, but are in really high quality programs. Let’s say, a strong nursing program, for example, that you know that student is going to graduate into a great job, is going to have the ability to repay that funding product. But for some reason, at the point of needing a financing product, they’re turned away, right? And that’s really where we’ve come in. As we said, instead of relying on seven years of credit history for these degree programs for these students, let’s not just think about their FICO scores.

Tess Michaels:
Let’s think about alternative credit underwriting and future cash flows to really give access to a broader set of students. And because of that, we never require co-signers, we don’t have FICO cutoff scores and a very broad set of students, especially those with thin credit files can utilize outcomes based funding. So that’s the degree market. In the non-degree market, the biggest difference is there’s no federal funding, right? So it’s actually an even trickier market to get access to financing. Typically students are paying out of pocket or they’re taking on pretty expensive private loans. And what’s interesting in that market is outcomes-based funding products are not just about access, but it’s about the signal it creates because the student is making a bet on their career saying, “I know that there’s not a formal degree attached to this, and I’m not going to get a formal diploma that I’m going to hang above my bed the same way that I would. Let’s say, XYZ master’s degree.

Tess Michaels:
But instead I am taking this program to get a really high paying job or a very stable job. And so let me have a funding product that is going to have the right protections built in based on that.” That’s really the difference of the purpose of the funding product and also the types of products offered between the two spaces.

Todd Zipper:
Can you give us a sense of the percentage of the market, right? On the degree side and the non-degree side or an alternative credential side, what does it consist of today and where do you see this going? Because on the alternative credential side, it feels like it can become a big part of the market and that could really influence the affordability and accessibility part of it. Whereas on the degree side, it seems like it’s still a very small percentage. So can you talk a little about that?

Tess Michaels:
Yeah. So it’s funny when we think about percentages versus actual quantum or like how much the volume is, the differences in the degree market, you’re right, it’s going to be a far smaller percentage because federal funding is still the vast majority of funding that students take on, or even private loans are a small subset of that, but the actual TAM or market size is just billions of dollars a year being put to work. Whereas in the non-degree market, the growth rate of that market is quite a bit higher. Right?

Tess Michaels:
We just see so many new entrance. I mean, universities building their own certificate programs, boot camps coming into the market, et cetera. So a lot of growth, but the market itself is quite a bit smaller. But what you see is the vast majority of non-degree programs, especially your boot camp programs have an outcomes-based funding option that is typically either an income share agreement or a deferred tuition agreement. And a lot of them, for example, one of our partners SV Academy, students either pay out of pocket or they use RDTA. It is the sole financing option, and we’ve seen massive spikes in enrollment and really strong student satisfaction there, but that is tied to enrollment in a way that it isn’t yet with the degree programs. Right? It’s something that the market is working toward, but it’s just I would say time dated a bit slower in that space.

Todd Zipper:
Yeah. So, let me get a hit on the degree side for a little bit. I know about five years ago, Purdue announced a program, the Back a Boiler campaign which is an ISA fund. They’ve had, I’ve read 1600 with students enrolled in the program, which has received funding totaling more than $17.9 million. They’ve got 50 majors represented across many different colleges. So here’s the thing. It sounds like a lot, but we also know that Purdue just announced its biggest freshman class ever over 10,000 students. Right? So one, when does this become more mainstream? Can it become more mainstream?

Tess Michaels:
Totally. I would say, the biggest piece is really around the educational point, right? Awareness is the first step of anyone’s decision-making process. And what’s amazing to me is when I entered this market, I remember there were big surveys that were done that showed at this point in time, this is years ago, less than 7% of parents and 5% of students even knew what an ISA was or any of these outcomes based funding products. And if you look at even Google trends to see just how much activity there has been in the last few years. I mean, it’s multiples higher than anything we had expected back years ago. So I think the awareness is starting to increase. We also see a lot more press and a lot more news, right? A lot more buzz around the asset class, but then the next step is, “Okay, how do we actually get this to A, be easy for students to compare their options, right?”

Tess Michaels:
So, we have tons of calculators and ways to at least make it transparent on the front end and then “B, how do we make this more broadly accessible?” so one of the limitations early on in the space for the degree market was taking the Purdue example you gave was that the providers at the time required the universities to actually fund the offering. Right? And you can imagine how many innovative university presence there are that want to in-house, offer a financing product, right? I mean, it’s a tough way to grow very quickly. And so one of the things we brought to market was the concept around just having a direct a to student offering. Similar to what sofa SOFIDE, COMMON BOND, Sally, may have in the private lending space. We said, “Why should a student be limited to the school they go to get access to this type of funding?” So we brought third party impact capital to the table and partnered with players like NerdWallet, who you cited and became an option. And now we’ve funded students across over a hundred universities across the US all D to C.

Todd Zipper:
So, you’re marketing directly to them. That’s pretty unique. Yeah. It’s the-

Tess Michaels:
Exactly, exactly. And so, that’s been a really great way for us to A, spread the word. And what’s amazing to see is just the word of mouth too. We’ll have, let’s just say like one nurse at Northeastern apply and then suddenly we’ll have 14 more students over the next 48 hours come through. Right? And what’s interesting about having a unique product structure is it creates more buzz and more discussion, which is great. But I think that was the piece that was missing was, there wasn’t that ability to support the broader market because initially players were going school by school versus more broadly giving it to students.

Todd Zipper:
So when you’re educating the students and their parents about this different options, right? Like, you mentioned the cascading, starting with the scholarships and grants and going down to now the private loans, can you just kind of walk us through an example of why choosing this outcome-based product versus a traditional loan, let’s say like, why it’s a no-brainer or are there more sectors or subject matters that are more leaning towards this?

Tess Michaels:
Great question. Yeah. So first of all, on the education piece. I mean, we have everything from, first, we want to, at the end of the day, really just help students get the lowest cost, most flexible funding, right? So we have scholarship databases, all sorts of ways to help students on the front end, just to make sure they’re thinking of all their options. Then once they get to the point of saying, “Yes, I want to move forward with an outcomes-based funding product.” Like I mentioned, we have calculators that help students compare their monthly and total payments, change the inputs and all the rest and compare private loans versus ISAs and other funding products we have in the mix. And on top of that, we have comprehension, quizzes, things to really make sure they understand the product. All of that is great, but the next piece is really around who is this a really great fit for?

Tess Michaels:
And for us, I think we’ve really seen the strongest uptake from your lowest variability professions where we can drive naturally the best rates to students. Like I said, in the degree markets, our capital comes from large, large nonprofits, like big impact investors and then banks, right? So very low cost of capital. And that allows us to make the decision for the student one, where we’re saying we can compete head on head on price, right? So Net-net the same on price with all of the benefits around the product structure. So you get flexibility, no recurring expenses, shorter duration, but at the same price. Right? So it becomes, like you said, more of a no brainer. Then as far as the professions go, I think our biggest segment in the degree market is nursing and then STEM majors, a lot of your again, low variability, very stable professions because you naturally see the tightest rates there.

Todd Zipper:
Yeah. So that’s an interesting situation where you’ve got these majors like technology or STEM, where the unemployment rates and the salaries are quite impressive, low on unemployment, high on salaries. So it seems like as an investor in ISA, let’s say, or outcomes-based, I’d be all over that.

Tess Michaels:
Yeah.

Todd Zipper:
Right? How do we think about maybe some of the other majors that may not lead to some of the best outcomes, underemployment, et cetera? How can this outcomes based products, maybe participate there or maybe even help more of those majors into something where there’s productive graduates?

Tess Michaels:
Yeah, yes. So I would say, first of all, like you mentioned, I think there’s a lot of incentivization even on our part as a financial provider to really offer some of that wraparound support. So for example, when students sign a contract with us, this is just part of the mission. We have a full career support portal that includes everything from, let’s just say, if you’re a nurse, we have NCLEX prep to help you with that. If you’re an engineer, it’s Technical Interviewing prep, we have mental health related content, all of these things to just help with persistence in program, once you complete getting the job and then once you’ve got the job retention enroll, right? And I think the beauty of that is as we grow and we have just a larger swap of students where you can kind of diversify a bit more, we’re able to hopefully shift income curves, right?

Tess Michaels:
And instead you’re almost skewing the odds towards the folks that are actually in the Stride community or having better outcomes than the average student within that specific program. And I think that’s a big piece. The other piece is, we do think about likelihood to graduate, so time to completion and their academic standing to make sure that these are folks that are again, that is how the product is tied. Right? So it’s a big determinant of making sure it’s accessible. And yeah, I would say in the non-degree market, I mean like tech sales is not pure play technology, but it’s a field we support and we’ve just seen incredible placement results there. Right? Because I think even if it’s not a technical field, you’re looking for industries where you’re seeing folks really starting to grow as far as volume and numbers.

Todd Zipper:
Yeah. You mentioned something about what I’m categorizing as retention services. It seems like you’re offering, you’re not just a financial transaction and I don’t want to put words in your mouth, but are you actually offering things to make sure that they graduate and then of course be successful in their careers?

Tess Michaels:
Yeah. It’s a great question. And truthfully, maybe we should, but it’s not how we’ve positioned ourselves but it’s naturally such a core part of our own business model and structure, right? We need to show, like to date in our degree programs, we’ve had a 100% graduation, right? We’ve had zero delinquents. I mean, just incredible performance. And I think a lot of that is that we’ve curated a set of partners that we have selected as really high quality. And then we’ve in-house created a lot of content to really think about how do we help them academically. Right? So when they’re in school, what is that exam prep look like? And then from a career perspective, so where are they looking to recruit? What exists and how they prep to get prepared for that big day?

Tess Michaels:
And then lastly, the piece that we added during COVID, which I was alluding to is really around the mental health piece that was actually student-led. We just realized persistence and program isn’t just about passing your exams. Right? And I think, we’ve all seen the markets shaken up a bit. And so we’ve added a lot of content in that vein as well and that was always just core to having founded this from that student first perspective. It was just part of why I’m here and I think why a lot of our team is here, but it does have the effect or byproduct really helping with retention in program.

Todd Zipper:
So do you not even think about default rates? Is that a purely a different type of term that you would use of somebody that doesn’t graduate? How does that person work in your system?

Tess Michaels:
Yes. Two pieces here, what we think through is delinquency rate, which is once someone’s contract has started, they’re earning above that minimum income threshold and they’re choosing not to pay, right? That is that willingness to pay and you obviously always want to make sure to solve for that. The ability to repay is already protected within the product structure, but that’s a big metric we think about from a performance perspective of how our students are doing, but what you had mentioned around, how do we think about non-graduates? At the end of the day, that’s one of the biggest risks if someone does not complete the program, because for most of our programs there is a very meaningful lift in outcomes and earnings based on completing or not completing. Right?

Tess Michaels:
Let’s just take nursing as an example, if you are in a BSN program and you do not complete that program, I mean, you just can’t. Yeah. I don’t need to belabor it, but point being like that is why it’s so important for us on the backend to think about that retention piece because we build into our models some portion of students that may not complete but the more that we can improve that the better off it is for our entire system.

Todd Zipper:
I know there’ve been some scrutinies around the model. There was a New York Times article that referenced ISA borrowers at school that focus on minority students might end up paying more than their peers at largely white campuses. I know you’ve talked about this. I’d love to hear your thoughts here, because it feels like a model that actually can increase access and certainly affordability. So, maybe you can unpack that for us.

Tess Michaels:
Absolutely. I mean, it is a issue that it has a lot of historic context around it. As far as when we think about inequity, it goes far deeper than what is the rate look like on A versus B, right? It’s really thinking through one, who’s getting access to financial products. When I gave the stats around the vast majority of private loans requiring co-signers and 75% of students not having access to a credit worthy one. The majority of students who don’t have access oftentimes come from minority populations or non traditional backgrounds. Right? And I think the issue with that is inherently, that means oftentimes more expensive products are going towards students who actually are really the most worthy of education to really have that kind of economic uplift. The second piece is really thinking about what goes into outcomes based funding.

Tess Michaels:
And it’s not a school by school determinants. It’s really thinking through what is the institution thinking through completion rates, thinking through quality of program, placement rates, et cetera. And that is more macro as far as actually thinking about that source. I would say, as far as how we think about the populations we serve, I mean, the majority of students we serve are women and minorities. A lot of that is because of the programs we focus on and the fact that we support in credit file students, which oftentimes traditional lenders overlook. And so it is core to our mission to really think about more broadly impacting the who. And I think, oftentimes it’s easy to get lost in how you frame any analysis versus actually thinking about what the alternatives look like. Right? And making sure that at any moment in time, we are doing better by the student and really moving the mark forward. And so that’s the way we think through it.

Todd Zipper:
Yeah. Just that stat and you said about co-signers when you’re explaining the model is really powerful because it just shows how focused you are on the outcomes, on the what does this type of program lead to and what are the typical salaries and then you back into costs, which makes total sense. Where do you see this not working? Meaning like, are there degree programs or specific colleges where you’re like, “We’re not going to touch that. It just doesn’t work in this area.”

Tess Michaels:
Yeah. I mean, I think some of it is also a point in time discussion, like a lot is A, what is your current underwriting policies and who are your current investors and what is the structures or limitations that have been put in place, right? So, right now we have certain limitations as far as how far away individuals are from graduation, right? Or which I wish that we could extend that, but there are just inherently ways that we solve for the lowest cost of capital to make it as affordable as possible for the students we can support today. But that limit the who in the short term, a freshmen for example, may change their major many times over. I was biology major back in the day and very pre-med and obviously that is not where you see me today.

Tess Michaels:
And so I think, that’s one piece that over time we’d like to solve for, but right now is limitation. The second is just the types of programs, right? The fact is when we look at the bell curve and we’re solving for what portion of students may be below the minimum income threshold, we typically want to make sure that expected outcomes are a couple of standard deviations above that, so that you’re driving fair rates to the majority of students. Right? And the limitation with that is there are certain professions where unfortunately, either it’s so variable that you have to bake a lot of buffer into your pricing or where there’s just really low skew. But with that said, I would actually say lower variability professions with lower outcomes are easier for us to solve for than one that is all over the map, right? Because you don’t ever want to create adverse selection.

Todd Zipper:
Right. So as these gain more popularity in universities and alternative credential providers, do you see the federal government taking notice and saying, “Hey, maybe this is a better way to bring down the cost, right? And because it backs into based on outcomes, talk about that.

Tess Michaels:
So it’s interesting actually right around the time that COVID is kicking off, the federal government was starting to think about piloting a few of these programs specifically around outcomes based funding at different universities. And that’s obviously A, a great signal that it’s something that the market was already naturally moving toward. But as you can imagine, I mean, the world turned on its head for the last 18 months, but it was a great signal that people were really starting to pay attention and take focus and move toward that. So they were looking a, what universities could we pilot, smaller programs with and how do we think about structuring that? And we were meeting with folks in DC and pretty active on that front. So actually do think yes, there is definitely going to be movement.

Tess Michaels:
The other pieces, I mean, if you look at how much of the federal government is holding on its balance sheet around federal student loans, this is something inherently they’re going to want to slowly start shifting and thinking about, right? It’s just not sustainable going forward. You gave the stats around 1.7 trillion. it’s not something that I can see the market continuing to stay at a steady state. And I think that’s where there’s a lot of opportunity for new or growing players like ourselves and others to really come and think about how could things be structured differently if we were to start with a blank slate, right? And that’s really what we’re working toward.

Todd Zipper:
Great. So what innovations in higher ed besides what you’re working on are catching your attention right now or anything else you’re looking to pursue at Stride?

Tess Michaels:
Yeah. So I think there’s a few pieces that I’ve personally been interested in. So first is I talked about just in COVID we saw a lot of accelerants around thinking about non-degree markets and what does that support look like. And so I think we’ve seen it across the spectrum of different approaches to this model, right? You have your standalone bootcamps. So we work with a number of players like general assembly and others that do your call it three month software engineering courses or tech sales courses, et cetera. And that’s been really interesting to just see the wraparound support they’ve built that I think takes it a level deeper than what you typically see in the standalone career services offices in a traditional educational institution. So that’s been really interesting to see that and then see universities trying to compete with their own certificate programs built in. And that’s a market, I didn’t even realize just how fast it’s been growing, but the number of net new certificate programs that folks are doing is pretty amazing.

Tess Michaels:
And it cuts across very, very short course programs to your eight month long cybersecurity courses that are getting paired up with the DOD. Right? And that’s super interesting to just see universities adapting at a faster pace with a lot of your non-degree programs coming in the mix. The second, which I know Todd, you and I have talked a bit about is just the employer piece, right? I know it’s been something that’s existed for a while, but a lot of our partners are now thinking about how do you bring employers into the fold and really create a link with the financing component almost as a retention tool, right? Because a lot of employers do big sign-on bonuses, right?

Tess Michaels:
When an employee comes on, problem is employee comes on and let’s just say they churn after X amount of time, it’s a loss to the employer and they immediately need to spend all of that additional time and resources to fill that spot again. So how can you almost make outcomes based funding products like ours, one where you’re almost crediting the payments owed over time and then essentially having a player like us collect if the individual goes to a different employer. Right? And I think that’s a really great way to tie the educational provider, the employer and the financing provider in a way that just currently doesn’t exist. Right? And then the last thing that I’ve been thinking through is just as we see the market evolving, how do we think about a lot of the third party, like wraparound systems that we’ve seen, right?

Tess Michaels:
And especially around your career mapping, that is something that I wonder. Like LinkedIn has this a massive wealth of data. I wish that there was a way to just get access to all of that and really decouple it and see. But I think a lot of companies are starting to more proactively say, “How do I help my employees across the spectrum? Move from point A to point B point C. And what does that look like over time? And what does it take to get there and what skills do you need, right? And who are the right providers that are the highest ROI, providers to really help with that development?” And so those are the three pieces I think about and a lot of it, we’ll see, I think come to bear over the next 24 months, especially as the world starts figuring out what steady state and normal looks like again. But it’s definitely an interesting time.

Todd Zipper:
Yeah. Thank you for that. On the employer point, there’s been just a steady drumbeat of news from these big corporations like Amazon and Walmart and others really just funding the education for their employees, which is we like to say to hit the three RS of reputation, recruiting, and retention. There you go. The most important one. And so, not every company can do that. And I think they’re going to need to be a little bit more creative around just funding the education and maybe some of your models and pairing up with you could be an interesting play.

Tess Michaels:
Yeah, absolutely. And I think, yeah, exactly like you said, you’ve seen a lot of your bigger companies do it. And I think now it’s also cutting across industries as well. There’s always kind of one flagship or anchor player that does it. Right? Like when you saw Walmart do it, you saw Target follow. I think that’s something we’ll start to see across different verticals as well.

Todd Zipper:
Yeah. So a couple last questions. If there’s one thing you want to ensure our listeners take away from our conversation today, what would that be?

Tess Michaels:
Yeah, I think at core, a big theme here was really just hitting around alignment, right? And that alignment piece cuts across everyone from the learner, the educational provider, the employer, and the financial provider. And I think, as we think about innovation, keeping that as core to our mission and as core to where we’re seeing the market evolving is definitely something that I am a huge believer in, as you can imagine. And I’m really excited to just see how many net new players are really coming on board. So yeah.

Todd Zipper:
That’s what I love about the model too. And I hope other education providers really jump on and see if we can help bend the cost curve and drive more access in the model. So last question, I ask this of all my guests. Part of what we love about education is that we all have learning champions. Who has been a learning champion for you and how has that person helped you in your life?

Tess Michaels:
Yeah. So one of our earliest investors, Deborah Quazzo she’s GSV Ventures. She has just been an inspiration just to see A, like how deeper relationships lasted over her career. Right? I think if you are to sum of the people you surround yourself with has been a huge lesson. Even as I think about the things I’m most proud of with Stride, it’s like the humans that sit around the table with me and the reasons that they’re all here and what gets them moving and shaking. And I think that’s something I’ve seen in her career she’s really held true.

Tess Michaels:
And the fact that you never lose by giving more. Right? And I think she’s always been so open with sharing her network and her connections. And I think that’s something in my life I definitely always want to be able to do the same when I go forward and just know that you really can make things happen and it doesn’t matter what age or stage in your life you’re at. But she took a leap of faith on me when I was in grad school. Right? And that’s a big move when you’re making a bet on someone and hopefully it will continue to pay off, but it’s definitely someone I appreciate.

Todd Zipper:
Well, Tess. I really appreciate you taking the time to speak with me today. I’ve learned so much. Follow the money, right? This is a new way of funding education, and I can’t wait to see how it plays out. So until next time, this has been An Educated Guest.

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