Educational Securitisation

Could financial engineering techniques be used to solve the problems of sub prime schools?

Take the lowest graded pupils in a school. Destroy the link between the pupil and the grades and forget about the pupils – they are irrelevant. Take all the individual exam grades you have and cherry pick the best ones. You are bound to have an A in art here and a B in general studies there. Out of a hundred underachieving students, you should have enough decent grades there to create a dozen or so “super-senior” students. Plenty more will be investment grade (5 or more C level passes).

Hey presto. Financial engineering has been used to turn sub prime students into high value students - or Educational Diploma Backed Securities (EDBS). Triple A rated EDBS can be be sold on to top schools to boost their presence in the league tables.

Inevitably there will be a few tranches of sub investment grade – or junk – EDBS left over. Junk-rated EDBS is high risk but there might be some hedge funds who fancy their chances turning these students around. Obviously any junk-rated EDBS that went on to pass A levels or get good jobs would constitute a considerable achievement and the returns would be considerable, in terms of league table recognition.