We hope this will help universities break siloes between their admissions functions, the actual education, and jobs placement, said Dan Epstein, a principal in Trust Ventures. Ultimately, we want to incentivize them to help students get jobs.
of Americans Who Go to College Don't Graduate
The Challenge
Wade Eyerly is exceptionally bullish about college degrees, which he calls “probably the single best thing you can do with money.” And yet, he points out, about 40% of American students who go to college don’t graduate. In addition to the lost financial opportunity, many find themselves in a deep hole of debt if they’ve already taken out loans. What’s more, universities and colleges, which are already struggling to keep enrollments at optimal levels, lose valuable revenue when students leave their studies prematurely.
This is a concern for those headed to four-year degree programs, as well as for the many others who can benefit from other credentials and training paths. Whichever the learning context, completing the program is essential to ensure future workers have the skills to succeed in the workplace. It’s important not just for individual workers but also for businesses, industries, and the U.S. economy, which depend on a strong talent pipeline for their future vitality. To reverse that crisis, Eyerly and his colleagues have developed an innovative model that reinforces a central imperative espoused by the U.S. Chamber of Commerce Foundation’s Talent Finance initiative: make it possible for students, learners and workers to get training for skills they need to succeed in the workforce.
The Solution
Eyerly is the founder and CEO of Degree Insurance, a company that bets that five years of guaranteed income after college will incentivize more students to stay in school and complete their undergraduate degree or skills training. Degree Insurance assigns a market value to college majors or skills tracks. If the graduate goes on to earn anything less than that amount, Degree Insurance will pay them the difference between its estimated market value and the graduate’s actual pay. So, for example, if Degree Insurance calculates that an undergraduate engineering major will yield a hypothetical annual wage of $60,000 (targets will vary by major, region and other circumstances) and the graduate’s salary is only $55,000, the worker can make a claim for the $5,000 difference for each year it exists. In this scenario, Degree Insurance will send the worker a lump sum check for $25,000 at the end of the five-year period. Degree Insurance is lowering risk that stands in the way of students’ own upskilling opportunities, and it is asking employers to put some of their own skin into the game.
This model also incentivizes schools to invest some of their own funding into each student – that is, to make a more concerted effort to reduce attrition and place students into post-graduate careers. The venture capital firm Trust Ventures identified the potential impact of the model and invested early-stage capital into Degree Insurance to support the purpose and vision. The model “puts a little more of the onus on the schools to raise the odds that students will not just graduate, but also have the skills businesses are so desperate for,” says Dan Epstein, a principal in Trust Ventures. “We hope this will help universities break siloes between their admissions functions, the actual education, and jobs placement. Ultimately, we want to incentivize them to help students get jobs.”
A typical premium from Degree Insurance costs a school around $2,300 per student (again, each scenario will vary), which is equivalent to $287.50 per semester over four years. Considering what many colleges offer in scholarships, tuition discounts and other promotions aimed at recruiting and retaining students, that’s hardly a prohibitive investment. Simple math easily convinces the schools it’s a good financial deal. Degree Insurance cites an analysis showing that if a student stays in school for three years, the colleges break even against the cost of the premium, and they come out ahead when students stay four and five years.
An Early Proof of Concept
The company’s first policy holder, Augustana College in Rock Island, Ill., decided in the late summer of 2021 that it wanted to fill spaces left open when a larger-than-expected number of admitted transfer students chose not to enroll late in the process. Trying to recoup the lost revenue, Augustana launched a pilot program — only a few weeks before classes were scheduled to start — to entice transfer students from other schools with the promise that they would be covered by the guaranteed income insurance. Forty-seven transferees accepted the offer and increased Augustana’s enrollment by 20 percent, far more than the school had anticipated. The response indicated to Degree Insurance that this model can appeal to students in a real-world sense.
More Than Just Universities and Colleges
Still in its first few years of operation, Degree Insurance has so far sold policies to four schools for four-year degrees, covering nearly 400 students combined. About 40 other colleges and universities have at this point expressed interested in the product, according to Eyerly.
Degree Insurance also offers great potential for learning settings that don’t involve a four-year degree program. The Degree Insurance team recognizes that the traditional four-year degree is not a one-size-fits-all solution, particularly among the many Americans who are rethinking the value of higher education. Future aspirations for the product include applying it to technology boot camps and other alternative skilling and credentialing programs. The mission and goal for Degree Insurance is to use its guaranteed income model to build larger and better-prepared pools of talent that businesses need for their own success.
The Hurdles to Guaranteed Income Insurance
Bringing a new product like guaranteed income insurance to market is not without its complexities. Some of the challenges include convincing state insurance regulators to approve this new product for sale in their states. With the help of the National Association of Insurance Commissions, which has endorsed Degree Insurance, the company has so far won approval to sell in 18 states and hopes to expand to others in the near future.
The company has also waded into a risk pool for which there were no previously actuarial tables. To solve that challenge, Degree Insurance has tapped a diverse collection of information — such as a federal government data set about volume of student loans and the amount students earn when they graduate.
There is also state data about how many people graduated and the degrees they earned, but the company found this information rarely marries up to state unemployment insurance databases that detail job salary ranges. It also relies on census data, which helps estimate costs-of-living in different markets.
Minimizing Moral Hazard
There’s also the question of moral hazard — that is, the possibility that some students might take advantage of Degree Insurance benefits without really trying to land a real job or stay in the one they get.
“If you’re wired to sit on your hands and play Xbox,” says Eyerly, “there is no better time for that behavior to show up than when you’re in college, right? So, if you’re one of those kinds of students, you’re likely in the group that did not complete. We’ve already screened for those students who have an inherent drive to finish their degrees. So, you’re going to go through five years of college and then decide, ‘I want to sit on my hands?’ That’s probably unlikely.”
For those students who lose their jobs, Degree Insurance asks that they meet their state’s unemployment insurance requirements, which in most places means they must regularly apply for new jobs to be eligible. “We give you a lump sum payment at the end of five years,” Eyerly says. “So, people who cheat tend to do so in the short term.” Degree Insurance also sees itself as a model of talent financing that can not only improve the pipeline of well-prepared workers, but also help address larger social challenges. Even without reliance on public funding (again, its capital is privately sourced), the company says that the guaranteed income model can help reduce the default rate on federal student loans, given that the graduates will have income to pay them off. They also stress that it can benefit chronically disadvantaged students by ensuring equal earning outcomes for all graduates, regardless of their race, gender, or social status.
Though it is only just getting started, Degree Insurance can, at a larger, future scale, be a powerful incentive for students to pursue a degree or credential that will open doors for them in the workplace. In turn, it can provide employers with a larger pipeline of well-prepared employees who can help their enterprises thrive.
Talent Finance is a collaboration of The U.S. Chamber of Commerce Foundation, the Federal Reserve Bank of Atlanta, the Greater Houston Partnership, Working Nation, Education Finance Council, SHRM, National Association of Workforce Boards, the National Governors Association, Social Finance, Jobs for the Future, and Uncommon Impact Studio. The mission of the Talent Finance Initiative is to make education, training, and credentialing more affordable, with less debt, and to achieve better outcomes for learners and workers. Talent Finance refers to the development and use of public and private instruments for aligning investments in talent development and in managing employment and income risks. Talent Finance explores how we can produce a better public-private approach for how we finance and invest in talent.
Degree Insurance is a member of the Talent Finance Innovation Network (TFIN), a community group dedicated to putting the Talent Finance guiding principles and framework into practice.