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October 08, 2015

Utah Preschool Program Yields First 'Pay for Success' Payout

Goldman Sachs will reap financial gains for funding a Utah program that showed positive results in keeping kids out of special education. It is the first time a U.S. social-impact bond has paid off for the investor, The New York Times writes.

The Wall Street bank covered preschool costs for 595 students, 110 of whom were expected to require costly special-education services. After a year of preschool, testing indicated only one of the students needed special eduation, and the state paid Goldman Sachs what it would have spent on special ed for the other 109.

Social-impact bonds, also known as "pay for success," provide a new way to fund social programs in an era of government budget cuts. Nonprofit and private investors put up the money and see returns if programs meet quantifiable targets. The first such effort in the United States — a project to reduce recidivism among inmates at New York's Rikers Island prison, also backed by Goldman Sachs — was shut down in August after failing to meet performance goals.