For many, student loans are the first legal contract they sign at 18. And it takes 21 years, on average, to pay them back. A college education is the largest uninsured investment market in the world. It’s the only place you’d counsel your loved ones to borrow 10 times their net worth, make a single investment with it, and just hope that they’ll graduate into a good economy in 4 years.
The investment works well, as long as you finish. A college degree adds more than $1 million on average in lifetime earnings.
But what if students don’t graduate, dropping out because they see no light at the end of the tunnel? Or they don’t enroll at all. In times of uncertainty, the sort of long-term thinking and ultimate decision to enroll in college is harder to justify.
Yet it is precisely in times of chaos and economic hardship that a college degree is needed. Unemployment rates reached 10% in the depth of the Great Recession, with both black and Hispanic unemployment rates 20-50% worse. But for those with a college degree, the unemployment rate peaked at 5%. A college degree reinforces its value in an economic downturn.
As we think about our response to the COVID-19 and the toll it is taking on the economies of our families and our nation, we must remember we have the tools to persevere and overcome. America’s higher education system is the marvel of the world and a key component of America’s exceptionalism.
The options to support that higher education system are typically limited to increased funding directly to high education institutions or forgiving some or all of students’ educational debt. However, a creative third option would be to guarantee a graduate’s salary.
While much has been written about the first two options, we think the third option might well be the best one, especially given the COVID-19 crisis.
Guaranteeing graduates’ salaries would strengthen the bottom line of the underlying institutions through revenue streams they’re already expecting (student enrollment). It would provide certainty to students by giving them the confidence to make a long-term investment in the midst of a short-term crisis. And, it would ensure that America’s future is bright by insisting that a generation is not lost to a lack of education.
The guarantees could have relatively low costs. Buying an insurance policy that guarantees a student’s earnings in the relatively short period after they graduate – say 5 years – may cost no more than $3,000. That’s $3,000 against a backdrop of hundreds of thousands in tuition. And most importantly, knowing with certainty what you will earn will encourage more students to stay in school and complete their degrees.
Enrolling in college is a start, but the key is finishing. Only 6 out of 10 new college students will graduate in 6 years. The rest get the debt, but not the degree. Any action taken needs to support this group of students to help them complete their degrees.
The ROI for guaranteeing student outcomes is clear. It lets our universities do what they’re good at, building the next generation of leaders and innovators, educators, and heroes. It insulates our most vulnerable from economic risk.
A college education is an indispensable bridge to economic mobility in this country. We can and must take meaningful action now to save America’s higher education for the next generation and beyond.
Wade Eyerly and Dennis Murashko are the founders of Degree Insurance, the first company to offer insurance on the value of a college degree.
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