Official development assistance (ODA) for education has declined for years, but within the last year, significant decreases have occurred. According to UNICEF, ODA for education is projected to reduce by an estimated $3.2 billion – roughly a 24% drop – compared with 2023 levels, with the United States, Germany, and France accounting for nearly 80% of the cuts, raising the risk of millions more children being out of school. According to UNESCO’s Global Education Monitoring (GEM) Report published in February 2025, low- and lower-middle-income countries must increase their education spending by an estimated $97 billion annually to achieve Sustainable Development Goal 4: quality education for all by 2030. But the sweeping reductions in ODA now threatens to add another $1-2 billion to the annual financing shortfall. The scale of the chronic global funding deficit has quickly intensified, leaving the sector grappling with the implications.

On top of this, in January 2025, the U.S. government froze foreign aid and dismantled the U.S. Agency for International Development (USAID), issuing an unprecedented wave of terminations across its portfolio of contracts and grants. By early 2025, an estimated 86% of USAID contracts and grants amounting to over $75 billion had been terminated or canceled, including all but four of its education programs, with a direct impact on more than 44 million learners globally. 

The Education Finance Network (EFN) spoke with four EFN members (Opportunity International EduFinance, Waiser, Fundación Carulla, and Brookings Institution) to understand what this shift looks like from the perspectives of implementers, funders, and researchers. Across these conversations, we asked how different organizations are rethinking strategies, partnerships, and priorities to adapt to a changing funding landscape, and what it will take to continue delivering impact with fewer and more fragmented resources.

Reduced ODA means stretching limited capital further

With a significantly reduced funding pool, some organizations are shifting their mindset to focus on cost efficiencies and using limited capital to generate more revenue.

Alejandra Montes Saenz, Executive Director at Fundación Carulla, argues for this deeper mindset shift that asks organizations to selectively draw from private sector practices that could enhance sustainability and resilience and strengthen internal systems, governance, operational discipline, financial management, and leadership practices, while remaining deeply anchored in social mission and purpose:

“Social organizations could start thinking more like social enterprises, adapting internal and management practices similar to what we see in the private sector. We look for that mindset in the organizations we invest in, because that is the conversation we want to foster. Although the ODA cuts are concerning in their impact, they have brought greater visibility to an important conversation in the sector: one focused on sustainability, institutional resilience, and stronger organizational foundations.”

For Fundación Carulla this means funding organizations with a clearly articulated vision for management structures, cost efficiencies, and diversified funding strategies. Fundación Carulla invests in organizations across Colombia with the goal of supporting and scaling high-quality education initiatives, including in early childhood and educational systems strengthening, through innovative, scalable models. As Alejandra explains,

“We want to achieve long-term sustainability for the organizations we invest in. The recent ODA cuts have prompted many social impact organizations to reflect more deeply on their funding models. Over-reliance on a small number of donors can create structural vulnerability. Long-term resilience requires diversified and mission-aligned revenue streams, including exploring alternative financing mechanisms and, where appropriate, engaging with private markets.”

For all types of funders, tighter budgets are shifting the conversation from which education programs to fund to how to fund them more efficiently. With fewer resources available, there is growing pressure to understand what programs actually cost, what outcomes they deliver, and how financing mechanisms can be designed to maximize impact per dollar.

Relatedly, Emily Gustafsson-Wright, Senior Fellow at the Center for Universal Education at Brookings, discussed the role of cost data in budgeting and planning, priority setting, and accountability of spending. She also noted the role of cost data in executing results-based approaches more effectively.

“Funders are realizing that with even more constrained budgets, funding must be used efficiently, effectively, and equitably. Outcomes-based finance (OBF) is one mechanism that has the potential to drive such change and even strengthen underlying systems, if executed well. In a paper, I am currently working on with the Education Outcomes Fund, I focus on outcomes pricing (how much outcome funders pay for each outcome achieved) for OBF in the early childhood sector. Crucial to outcomes pricing is evidence on the cost of delivering outcomes in any given context. In short, we can’t continue to be in the dark about how much is being spent and what we are getting for it. In recent years, we have definitely noted an increased interest in cost data. In our work at Brookings, through our costing labs and the Childhood Cost Calculator (C3) and Global Costing Taskforce for Education and Early Childhood Care and Education, we aim to increase this demand even more and grow the volume, quality, and use of cost data in education and ECCE across the globe.”

In addition to striving to achieve greater ‘bang for the buck’ by improving data transparency and making payments contingent on outcomes, another focus must be about how grant and investment capital can be used more strategically to unlock additional sources of financing. Andrew McCusker, Head of Education Finance at Opportunity International (Opportunity) proposes a ‘call to action’ that asks funders to think deliberately about how their capital can catalyze others:

“To the funders specifically, we need more of a focus on using grant capital and investment capital to crowd in other sources of funding. There is strong evidence of the potential of investing small amounts of grant funding and using this to bring along other sources. If the private sector is going to maximize its potential in terms of closing the education funding gap, that’s what needs to happen. I would like to encourage all funders out there to be thinking with that lens – about how they can make their small pots of grant funding much, much more impactful.”

Engaging the private sector means embracing profit-oriented growth alongside social impact

All four experts we spoke with agree that increasing private sector investment in the education sector as a potential source of new income is key to closing the nearly $100 billion education financing gap.

Andrew McCusker outlines how private sector engagement could achieve sustainable growth and what it takes to develop these partnerships:

“There needs to be more focus on leveraging the private sector to increase its funding share into global education if we are to get anywhere close to reducing the $97 billion funding gap. That private sector investment can come from a range of sources. In our case, we work most closely with local financial institutions. However, there are other private sector actors and funding mechanisms out there that can go a long way to reduce the global education funding deficit.”

Opportunity operates through a network of more than 200 financial institutions partners, including local commercial banks, microfinance institutions, and credit unions. Critical to these partnerships has been a fundamental understanding of the way the private sector operates to achieve sustainable growth. Understanding these distinct incentives is something that Andrew McCusker believes will be a necessary adaptation for other organizations in the future:

“The most important thing is the alignment of incentives to private sector actors. In our case, that is an alignment of incentives with the financial institutions and the low-fee private schools that we’re working with. The incentive for financial institutions to invest in the education sector is to increase the size of their loan portfolios. The incentive for private schools is improving quality, in part, but also to increase enrollment and revenue. Understanding these incentives is something that is really central to our program design. I suspect that understanding this mindset needs to be very central to anyone who is working with the private sector.”

Similarly, Waiser, an implementing organization, understands that a key incentive for private sector actors is to increase revenue growth, which means focusing on financing models that can achieve this. Working across Southeast Asia, Waiser expands access to postsecondary education through income-share agreements (ISAs), an innovative financing mechanism in which students receive upfront support for tuition and related costs and repay only once they are earning income, with repayments tied to their future earnings. ISAs shine when it comes to sustainability, due to the capital recycling built into the model and in all instances when the main outcome of education is to provide an avenue toward employability. The achievement of the outcome and the financial sustainability of ISA programmes are intertwined. 

This has important implications for the education institutions that benefit from the funding as they have to prove the quality of their courses based on an employability track record and relevance to their students. 

In contrast to traditional scholarship-based models, ISAs are structured to recycle capital over time, allowing the same funds to support multiple cohorts of students. As funding constraints tighten, this model has become increasingly relevant for funders seeking approaches that combine social impact, measured in employability and upward social mobility, with a financially self-sustaining model, oriented towards growth and scale. As Mario Ferro, Founder and CEO of Waiser, explains,

“When compared to traditional scholarships, ISAs are inherently more capital efficient. I remember one funder telling me that scholarships have the problem of being a black hole. They only grow by spending more. With ISAs, every dollar that comes our way is recycled to maximize impact. Every dollar of philanthropic capital invested in an ISA will achieve at least a 2X impact and up to 6X over a 30 years’ timeframe. This means more students being served, but also an avenue for growth for education institutions offering quality courses leading to employment. In the wake of the ODA cuts, while there are fewer dollars to go around now, it also means there is increased interest among funders to make sure every dollar goes as far as it can possibly go.”

Locally-led institutions must be strong enough to outlast donor funding and thrive in the long term

As the sector adjusts to reduced and more uncertain funding, long-term resilience depends not only on new financing models, but on locally led institutional strengthening. For funders seeking to “do more with less,” this means looking beyond short-term service delivery gaps and investing in the systems, data, and local capacity that allow education ecosystems to thrive in the long term. 

Emily Gustafsson-Wright explains how true sustainability will hinge on whether governments and local institutions are equipped to own, manage, and continuously improve their own systems.

“I really hope that, despite the crisis, governments and donors can see the long game: to ensure long-term sustainability and resilience, it is critical that they invest in systems strengthening, including research and knowledge sharing, data collection and analysis, and capacity strengthening. I heard recently of one example of a local government data system completely collapsing with the exit of USAID, because it was run by USAID. It’s one thing for services to disappear, but when it’s information about an entire population of a country? It struck me that these systems should never be held by a bilateral donor, they must be held and managed by governments themselves. It made me think about sustainability in this way. I hope in the face of current budget constraints, we don’t focus only on quick fixes and filling holes, but rather on the deeper institutional work that needs to happen.”

When it comes to institutional strengthening, Mario Ferro sees the current moment as an inflection point rather than a purely negative shock. As funders become more selective and more focused on effectiveness, there is cautious optimism that the sector could emerge stronger, with higher-quality institutions, clearer models of impact, and a more resilient ecosystem overall. Mario Ferro reflects on how this period of scarcity may ultimately reshape the education landscape for the better:

“We find that, unfortunately, a lot of educational institutions in Southeast Asia only exist because of longstanding donor funding, but they are not very effective. So in this moment of reduced donor funding, I hope this means the good education institutions emerge and grow and become a model for others. Maybe, if the pendulum swings back and there is capital that comes back, we will have a better overall industry, because those better-quality institutions are those that survived. 

Maybe, on the other side of the pendulum, we’ll be able to attract a whole new generation of funders that are engaged in a way that they wouldn’t have been in the old setting. That’s my hope.”