For many young people and their families paying for college is one of the largest financial investments they will make. Witness the fact that the majority of graduates assume thousands of dollars in loan debt to pay for their education. For most students, the outlay is perceived to be worth it because if they earn a degree they stand a good chance of reaping a substantial return on investment (ROI) in the form of better jobs and bigger earnings.
But what if you could ensure that ROI? What if your college degree came with an insurance policy that guaranteed for the first five years after college you would receive the income a degree in your major field typically provides? And to top it off, what if the premium for that insurance were paid for by the college you attended?
Sound like a good deal? Well, that type of insurance product may soon be available, thanks to a new company that’s just getting off the ground and beginning to make its pitch to colleges and universities looking for ways to increase their value proposition, attract more applicants, enroll more students, and improve their graduation rates.
Degree Insurance is the company, and it’s the brainchild of Wade Eyerly, founder and CEO, and his co-founder Dennis Murashko. Eyerly has experience with start-ups. With his brother, he raised several rounds of venture financing to found Surf Air, a private, member-only airline. Prior to that he served as an economist at the Pentagon, a civilian intelligence officer for the U.S. government, and as as an advance press representative for Vice President Dick Cheney. Murashko is an attorney who previously served as the general counsel and senior advisor to Illinois Governor Bruce Rauner, where he led a state team responsible for a wide range of legal, regulatory, and compliance issues.
When I asked about the idea behind Degree Insurance, Eyerly told me, "There are a lot of folks working to keep the costs of tuition down and looking at why college costs what it does. We are focused on the other side of the equals sign, asking ‘Did you get what you paid for?’ Because, if we can be sure your education will lead to a good job then the debt burden becomes a lot less scary. With enrollments down 3-16% this year, colleges are experiencing a new kind of financial pain. If we can give students the confidence necessary to enroll (or to continue enrolling) we plug the budget hole that was made when a pandemic scared a generation of kids away from making long-term investments in their future."
Here's how it works. A college or university purchases the degree insurance - called American Dream Insurance - for an entire entering class of undergraduates. The insurance guarantees graduates of that institution that they will earn a given annual salary for five years after they graduate. The warrantied salary is calculated actuarially and depends on students’ majors and the college they attend. A psychology major from the University of Iowa might expect to make $35,000 annually, an electrical engineering graduate from Purdue might average $65,000. For graduates who earn less than the guarantee over the initial five years post graduation, the insurance makes a payment that covers the difference between what they actually made (verified by W2s and federal tax returns) and the guaranteed amount.
The premium a college pays varies, depending on the institution’s student outcomes, but a ballpark figure would be $3,000 per head. Assume an entering class of 2,000 undergraduates, that's a total cost of $6 million for the institution.
Why would an institution purchase this kind of group policy, involving a tab that substantial? Because, according to the company, it should be able to make back its costs and “turn a profit” in just a few years. Eyerly told me that his team projects that in three years, a college could recoup its investment through a boost in enrollment and gains in retention. In other words, it will recover the $6 million and more through the additional tuition dollars it brings in.
Here are some of the terms and conditions to keep in mind. The benefit is available only to students who graduate within six years, thereby creating a strong incentive to finish a degree. The differential salary benefit is limited to five years, although the clock can be paused for students who, for example, go to graduate school or who enter the military. Any claims are paid as a cumulative amount after five years.
Graduates are required to seek employment, although realistically that can be hard to verify. And they are expected to meet their state's unemployment requirements if/when unemployed, whatever those are. A graduate might be able to sit back and sit out the job market, thereby gaming the system, but the company doesn’t expect that to be a common problem, arguing that individuals who persist through four or five or six years of college are not likely to then be content doing nothing with their hard-earned degree.
The company was launched with the help of an investment of more than $4 million from Trust Ventures in Austin, Texas, in addition to smaller amounts from other individual and fund investors. At this point, it’s licensed to sell its product only in Illinois, but Eyerly hopes that by the end of next year, it will be approved in as many as 30 states. Because insurance is such a heavily regulated industry, securing state approval to sell a new instrument is considered to be the major hurdle for a fledgling company to clear.
Degree Insurance is currently in the process of recruiting its first institutional clients, and Eyerly anticipates go/no-go decisions within the next 60 days.
The idea of college warrantees is not entirely new. Colleges have experimented with various kinds of graduation and employment guarantees, which promise that if students can’t find jobs after graduation the institution will provide them a semester or two of free tuition to return to school. But insuring the salary associated with a college degree is a whole different level of commitment. It takes much of the risk from the cost of college off the table, and it provides a huge incentive for degree completion at the same time.
Will colleges put their money into this kind of guarantee? While that remains to be seen, offering degree insurance is a bold, new idea and it just might be a way for states or even the federal government to persuade more students to pursue higher education and to stick with it.
As one example of how this product could scale, the company estimates that for $100 million, the initial salaries for every new student at all the nation’s Historically Black Colleges and Universities this year could be guaranteed upon their subsequent graduation. For about $14 million, and the necessary regulatory approval, it could guarantee the salaries of every public college student in Idaho.
Using this model, states, foundations and even the federal government could purchase insurance today that would let colleges begin to recruit and retain students much more effectively for the future. And underwriting this kind of insurance might prove to be very attractive to major donors as an alternative to traditional scholarships.
As Chuck Staben, former president of the University of Idaho and an advisor to the company, told me, “American Dream Insurance can provide the confidence that students and families need to invest in higher education, eliminating apparent risk from one of the largest investments they will make. More than that, American Dream Insurance can provide the confidence in higher education that has been sorely tested by the pandemic, but that is desperately needed to insure America’s competitive economic future.”