There’s Insurance for Homes or Cars — Why Not College Degrees?
For high school students, choosing a college can be both exhilarating because of the opportunities ahead and stressful due to the amount of money involved. Degree Insurance is a new company that aims to make investing in a college degree less risky. It offers insurance policies that guarantee a graduate will receive the typical income earned by a degree in their major for the first five years after college. The for-profit startup was co-founded by CEO Wade Eyerly, who has worked as an economist at the Pentagon and successfully launched other startups such as Surf Air, a member-only airline. Today, I talked with Wade about Degree Insurance and what he hopes to accomplish with this venture.
Rick: So what exactly is Degree Insurance? How’s it work?
Wade: Ours is the first guarantee on a student’s earnings in the years following graduation. Colleges choose to buy our insurance, and we use data on student outcomes from that college to set expected salaries for their students, by major. When students graduate from a college with our income guarantee, those students are covered for five years after graduation based on whatever major they finished with. At the end of the five years, all the students need to do is send Degree Insurance their W2s or tax returns — objective, verifiable, third-party documents that they’re filling out anyway — and we send them a check for the difference between what they were expected to make and what they actually made. For students, it couldn’t be simpler.
Rick: Where did this idea come from?
Wade: Higher education is the largest uninsured investment market in the world. And at an individual level, it’s the only place you’d counsel someone you love to borrow five or ten times their net worth and make a single investment with it. That’s just not a smart investment strategy. Think about your homeowners insurance. We all hope your home never burns down. But if it does, everybody is happy you get to rebuild. Higher education has just never had such an option before, one that lets you rebuild if the degree didn’t work for you. Now, it does.
Rick: How is this different from other approaches to college affordability?
Wade: Most everything else is focused on controlling costs. We answer the question, “Did you get what you paid for?” No matter what it cost, or how you financed it, there was supposed to be some level of return on that investment. We make sure you get that. If you don’t, Degree Insurance will pay you the difference. Knowing you can be sure of what you’ll earn lets graduates make longer-term decisions around things like family formation, buying a home, and so on.
Rick: Can you give an example of how some of these numbers will play out in practice?
Wade: Sure. We cover you for five years. Let’s say you’re predicted to make forty thousand dollars a year, but the job market stinks when you graduate and you only end up making thirty-five thousand dollars. So, instead of earning two hundred thousand dollars over the five years like we had told you, you only earned one hundred seventy-five thousand dollars. We will then cut you a check for twenty-five thousand dollars. Conversely, if you land a great job and make fifty-five thousand dollars a year, we do not pay you anything.
Rick: How much will this cost colleges, and what’s the incentive for them to sign on?
Wade: Every college has a different premium, or cost, and a different set of coverages, or guarantees, based on the data around how they perform. Most schools are in the range of one to four thousand dollars per student, one-time. It’s not a recurring cost for the college, and they are able to use it as a recruiting and retention tool. If you’re a college, there’s a significant competitive advantage in being among the first to really stand behind your product and guarantee that it works. A school could give students two hundred fifty dollars a semester in scholarships or guarantee their earnings for what is likely the same cost. What would you prefer?
Rick: So, is something that’s already happening or is it more conceptual at this point?
Wade: We’re licensed in Illinois and Utah. In January, we submitted applications to twenty-four more states. We’re expecting a raft of approvals to come in.
Rick: Could this wind up discouraging students from pursuing majors that often lead to low-paying jobs?
Wade: I think it’ll lead students into the majors where they’ll see the greatest happiness and satisfaction. STEM majors generally earn more than liberal arts majors at the start of their career, but they often get promoted faster. So the salary difference may not be tens of thousands of dollars, but might be fifteen hundred dollars a year. It might be much less scary than you think to go ahead and get that English degree — and we arm you with the information necessary to make that decision. Everyone is better off when we all understand what the outcomes are. We also work to enable some of those nonsalary-seeking things you might do after graduation. Rather than penalize someone for signing up for the Peace Corps or Teach For America, for example, we pause your coverage years while you’re enrolled and “pick you up” on the other side. You still have five covered years. We hope students will take advantage of those programs and opportunities and we didn’t want to give any disincentive to people looking at them.
Rick: What about the moral hazard — are you concerned that students may just take five years off to travel and have fun, since their salary is guaranteed?
Wade: A student could lackadaisically look for work and just wait five years to get “caught up.” But two things are working hard against that happening. First, you just made it through a four-plus year gauntlet to graduate. If you’re wired to sit on your couch and play Xbox all day, there’s no better place for that behavior to manifest than during college. If that’s you — you’re not likely to graduate. So, there’s a built-in filter for folks who are genuinely going to try and get real employment. The second is that we cover you for five years. That’s important. It’s a long enough period of time that you’re really getting a chance to reset if the degree failed you. But, human nature is such that, in economic terms, while people tend to “cheat” in the short term, they rarely do in the long term. Five years of sitting on your hands, of not getting that “real job,” is a long time to wait for a payoff.
Rick: I know you have an interesting college backstory yourself. Can you share a bit about that?
Wade: I went to the University of Central Missouri. I was a Pell Grant student, and while I wasn’t a first-gen college student, it felt a little like it. My dad had gone to eight semesters of open-enrollment summers at the local church college, Brigham Young University, and my mom never went. I didn’t really know how to get in to college. I didn’t understand that people applied a year in advance or studied for admissions exams. So, I drove to the University of Central Missouri in August of 1996 and asked how to sign up for a dorm. Suffice it to say that I only got in because a kindhearted registrar took pity on me and I had some halfway decent test scores. I later went to my dad’s alma mater for graduate school where I was told, “Academically, there’s no way you qualify, but we like to take a chance on students from time to time.” Years later, I was admitted to Stanford’s business school but ended up turning it down to build my first company. So, I’ve had a range of college experiences, and while I like to think I made the most of the chances I was given, I often think about how my life would have changed if I’d not been able to enroll or if I’d dropped out along the way. I hope Degree Insurance can help other students like me who maybe didn’t have it all together at seventeen or eighteen years old but who nevertheless can go on and make an impact. America is built on those stories, and we need more of them.
Rick: If advocates, policymakers, or philanthropists are intrigued by any of this, what would be the next step for them?
Wade: Engage with us. We have a chance here to make real, institutional change to the risks involved in accessing the American Dream through higher education. If you’re a donor and you give one million dollars to a scholarship fund, on average you’re going to pay for forty students’ studies, twenty-five of whom will get a degree and be lifted permanently into the middle class. But, that same one million dollars could guarantee four hundred families move into the middle class with our income guarantee. If you’re a policymaker — think about this. We spent nearly one hundred billion dollars this year supporting higher education in the CARES Acts. But for just one hundred million dollars, we could have guaranteed the outcomes of every new student in America enrolling at historically black colleges and universities. If social justice is something you value — this is where you can make a lasting impact. It’s not just our new vice president. Fifty percent of Black lawyers and doctors and a full eighty percent of Black judges, and fifty percent of Black lawyers are historically Black colleges and universities graduates. Despite their clear success in moving historically marginalized folks into the middle class, the graduation rates lag behind national averages. This is exactly where Degree Insurance helps — giving students the confidence necessary to enroll and persist through to graduation.
This interview has been edited and condensed for clarity.
This post originally appeared on Rick Hess Straight Up.