In Colombia, only 50 percent of the population between 17 and 24 years of age have an education beyond high school level, compared to more than 80 percent in the U.S. There are several reasons for this low rate. Some students feel that higher education isn’t for them, while others avoid it because they don’t see the value in tertiary education.
One of the most prominent barriers to higher education is the lack of access to education financing. For instance, 50 percent of Colombian college students end up dropping out, and 70 percent of these drop-outs are due to financial reasons.
However, driven by the country’s economic recovery and progress and its booming service sector, the economy is increasingly demanding a more highly educated and skillful labor force. A higher level of education is also a key driver of upward mobility in Colombia — a professional with a bachelor’s degree earns about 3.5 times more than one with only a high school degree.
Most students turn to Colombian public universities, which are high quality, tuition-free institutions. However, getting into these universities can be very challenging because they don’t have the capacity to keep up with a growing demand for education. This leaves a majority of students to enroll in private institutions where cost and quality vary greatly.
ESCALA Educacion, Accion Venture Lab’s latest investment, aims to help address the issue of access to education financing. ESCALA Educacion was co-founded 2012 at the Harvard Innovation Lab by Jonathan Duarte, Andrea Echavarria, and Juliana Uribe. After benefiting from their own education at elite universities in the US, they were driven to help provide high-quality education to Colombians.
ESCALA Educacion offers automated saving plans to cover higher education cost for lower- and middle-income families. ESCALA Educacion partners with small, medium and large businesses to provide plans to their employees. Participating employees’ monthly contributions are automatically deducted from their payroll and transferred to a low-risk, interest-generating investment account. Employers can support the employees by matching up to 100 percent of their contributions. The savings can be used to finance the education of employees or their children.
ESCALA Educacion also provides enrolled employees and beneficiaries access to tuition discounts ranging from 10 percent to 60 percent at over 40 higher education institutions, with more than 800 programs ranging from technical degrees to master degrees, and even short-term courses, such as a coding boot camp and English.
In addition, ESCALA Educacion provides free mentoring sessions to enrolled employees. These sessions help guide the students, and their parents, as they navigate through their higher education and professional career plans. ESCALA’s customers also have access to a large range of free education-related services through their affiliation with non-profit organizations that work to remove other barriers to accessing education by offering coaching, grant programs, affordable textbooks, and many other services.
ESCALA also benefits employers. It works as a powerful retention tool that enables businesses to provide their employees with a strong incentive to stay long-term, reducing turnover rates while helping enhance the educational opportunities of the employees and their families.
Venture Lab is excited to work closely with the ESCALA team. We invested in the company — our first in Colombia — for a number of reasons:
- Leveraging the employer-employee relationship to promote savings among lower- and middle-income workers: The employer matching of the employees’ contributions creates a strong incentive for employees to continue saving until the end of the plan. It also helps build new and long-term saving and commitment behaviors. Matching funds from the employer create the incentives to complete the saving program and fulfill the original savings goal. Automatic discounting from the payroll is key to secure the allocation of the funds to the program and avoid short-sighted spending. Low- and middle-income segments in Colombia have a strong distrust of financial institutions following a series of financial crises in the past decades, and ESCALA is leveraging the trust in the employers to create confidence in the structure.
- Clear impact potential, even beyond savings: By directing the savings toward educational programs, ESCALA is promoting the upward mobility of low- and middle-income employees. ESCALA’s solution combats the main cause of dropout in higher education in Colombia. While ESCALA has been focusing so far on educational programs, there is a great potential to expand use to other categories, including housing, healthcare, retirement, and financial products such as credit scoring and loans.
- Opportunity to learn from a powerful acquisition channel: We have seen a growing number of opportunities leveraging the employer channel to reach underserved segment. We think such a channel could be very powerful in terms of acquisition and engagement, and we are excited to learn more about it.
We are excited to support ESCALA as they continue to grow and scale and provide greater access to quality education to Colombians.