The US’s higher education system is the “largest uninsured market in the world”, complains Wade Eyerly, the CEO and co-founder of Degree Insurance. “We tell our kids to borrow 10 or 20 times their net worth, to invest in one single place and to hope it pays off – it’s really the worst thing in the world that you could do.”
Now, however, Eyerly and his co-founder and company President Dennis Murashko have a solution. Courtesy of a just-completed $4m fund-raising, their start-up is about to begin marketing a brand new type of insurance cover, dubbed “American Dream Insurance”.
The premise is simple enough. On leaving college, Degree tells students how much they can expect to earn, on average, over the first five years of their career, given their subject major and the college they attended. At the end of those five years, any student who hasn’t hit the average sum promised gets a cheque from the insurer to make up the difference. “It’s all about taking out the risk kids take when they go to school,” Eyerly explains. “They can be confident that they’re not taking a gamble in taking out those student loans and going to college rather than working.”
What will students pay for such insurance? Well, that’s the beauty of the policy – it’s aimed at colleges rather than individual students. Degree will sell its insurance to universities themselves, which will then use the cover to protect their students.
Even better, Eyerly is convinced many colleges will find that the cost of his premiums will be more than compensated for in recruitment and retention returns. Students will naturally be more likely to want to attend colleges that are able to guarantee them a minimum income following graduation. Even more importantly, students considering dropping out of college when problems mount, including financial pressures, will have more incentive to stay in school – and keep paying fees – when they can be sure of the financial return for doing so.
It’s a product made possible only by Degree’s work over the past two-and-a-half years collecting a treasure trove of data about educational outcomes. Crucially, publicly-available data on what graduates earn immediately after college is easy to come by, Eyerly explains, but sourcing reliable information on what happens in the following few years has been much harder. Now the insurer has this data, it’s able to price its insurance with a high degree of accuracy – and a useful by-product is that it’s also able to tell students what the potential economic return on any given course is likely to be.
Murashko believes this approach is a game changer. “It’s been illuminating to see the return on investment on a degree across the first five years of your career which will help students make more informed decisions about how to approach their education,” Murashko explains.
With a background as an actuary, Murashko is convinced the statistical evidence will be crucial. “This is what will encourage more kids to enroll in college in the first place and to stay enrolled,” he says.
“The thing that determines whether your college education pays off is not what you might expect, Eyerly adds. “It’s not the college you attend or what you study – the single most important determinant of your future earnings is the economic environment into which you graduate.”
Students leaving college in tough times – like this year’s Covid-inspired downturn – have to accept lower salaries and never make up the gap on those who are more fortunate in their timing. Wealthy students know this, which is why they flock to graduate school in tougher times, but less well-off students don’t have the same options. Degree Insurance’s product, however, can level the playing field. “High school kids living through the Covid crisis are naturally wondering whether the debt they’ll need to take on to go to college is worth it,” says Murashko. “We can show them it absolutely is, if they stick with it.”
Will universities and colleges sign up to this innovative new proposition? The short answer is that Eyerly doesn’t know for sure – but he is about to find out. The US’s lack of a federal insurance regulator means Degree is having to seek authorisation for its product on a state-by-state basis, which has so far prevented the company from selling policies. This week, however, Illinois gave Degree the go-ahead and Eyerly and Murashko can begin pitching to colleges in the state.
The final piece in the jigsaw came with Degree’s closure of a $4m seed funding round led by Austin-based Trust Ventures. The deal values the business at around $12m, but more importantly, the finance has given Degree the reserve capital it requires to satisfy the regulatory authorities. Trust Ventures’ co-founder Salen Churi will also join the board of the company.
Eyerly and Murashko believes the launch of their product could hardly be better timed. And with Illinois, with its widely respected insurance regulation – and a supportive stance on regulation – giving it the go ahead, other states may soon follow. The duo hope to have approval in up to a dozen states within the next year or so.
The insurance is ideally suited for protecting the interests of students from low income backgrounds, including many from minority groups already under-represented in the US’s higher education system. Given that those students are currently struggling with uncertain career and education plans amid the pandemic, they desperately need help – both reassurance that they can afford the risk of going to college in the first place, and support once they are there.
“Half of all new college students will drop out as they start to wonder if the degree will work for them,” Eyerly adds. “We want to help them finish and get the future they’ve paid for.”