A New Way to Insure College Debt Repayments

Degree Insurance is an innovative fintech startup that challenges conventional thinking on insurance for personal investments in education to enable college debt repayments.

College fees are the largest uninsured investment that many people will make. Degree Insurance is an innovative fintech startup that challenges conventional thinking on insurance for personal investments in education to enable college debt repayments.

The financial risk associated with student loans and fees is linked in most peoples’ minds to non-completion of the course, and repayment of costs without having achieved a qualification. Students that begin to question continuing their studies, often because they do not believe their job at the end of their course will pay enough, are incentivised to make a swift decision to minimise the size of their debt. For financially less advantaged students, the ensuing non-dischargeable debt can set back family finances for a generation. Consequently, while five million U.S. students sign up each year for a college degree course and only three million graduate, the average residual debt is under $10,000. Degree Insurance has a breakthrough solution to raise course completion rates.

Founders Wade Eyerly and Dennis Murashko, who began the business in 2020, looked at this challenge from a different angle. A U.S. college degree costs an average $35,000. Graduates, on average, go on to earn over $1 million more than non-graduates. At around a 30x return, completing college is a “no-brainer.” Their insight and experience told them that the biggest risk to students was to complete their studies but fail to land employment at a pay level that would enable them to afford the college debt repayments.

Their solution was to change the time at which insurance would be payable to students. Rather than pay them to drop out, Degree Insurance offers a policy that incentivises them to stay and complete their education: it covers them against low income after graduation. Degree Insurance accesses data on the median incomes of students who graduate in different subjects. No matter whether a graduate finds work related to their major or not, Degree Insurance will fill the gap for five years between their actual earnings (verified by providing copies of tax documents) and the median income for freshly qualified graduates working in their relevant industry sector. 

A B2B not D2C Sales Model

Rather than selling directly to individual students, Degree Insurance partners with colleges and universities to offer its insurance product for college debt repayments as part of their financial aid packages or through other channels, such as campus career centers.

The intentions were: 

  • To make the insurance product more accessible and affordable for students, as well as to create partnerships with schools that can help to promote the product and reach a larger audience. 
  • Learn how to improve the product through college feedback.
  • To align with Degree Insurance’s broader mission of promoting affordable and accessible higher education to more diverse groups of people, regardless of their financial situation or background.

However, some traditional challenges of business-to-business sales became apparent, and sales have become the biggest challenge for Degree Insurance. B2B buying decisions are usually made by groups, which requires multiple people to be in agreement. Key stakeholders identified by Degree Insurance are each college President, as their professional reputation and standing is on the line; the CFO, because he/she is accountable for the revenue and income; and the VP of Enrollment, because it’s what they are measured against. A fourth key stakeholder has emerged, and that is the Athletics Director. A Degree Insurance policy can guarantee students are able to complete a college course and make repayments, even college athletes who do not progress to professional careers.

The timing of some B2B decision-making can also be rather inflexible. College authorities are likely to decide on an annual basis to coincide with each year’s intake of students. So if they remain undecided there won’t be an opportunity for any policy sales for another 12 months.

There has also been hesitation in colleges about going full scale from the outset. Some colleges have begun pilot studies involving only the students considered to be the ones most likely to drop out and face college debt repayments. Whilst some “under the radar” activity has been going on, a growing number of other educational establishments are waiting for someone else to be bold enough to go first, more publicly, before they feel they have to compete and offer it to their students as well.

Monetising the business model

Degree Insurance has previously raised about $6.65 million, with half used as operating capital and half held as a statutory reserve. With sales progress slower than anticipated, the startup is considering crowdfunding as a way to raise an investment budget and extend their development runway, with a suggested target of $3 million to $5 million. Good crowdfunding can be good marketing. It would provide an opportunity to raise awareness directly among potential college student end-users (and their parents/guardians), as well as angel and retail investors, and scholarship donors.

Other stakeholders

In addition to non-completion resulting in a personal cost for the students, there are also costs to the other stakeholders. 

  • States support their universities because they want to help create a future tax base of above-average earners who will continue to live in the state after graduation. Each dropout represents a waste of some state money. In addition to decreasing the non-completion rate, perhaps a bigger risk to a state’s wider economy is the people who are good enough to graduate but do not go in the first place and fulfill their potential. 
  • High net worth people donate to scholarships for philanthropic and social-responsibility purposes, which can widen the pool of graduates. Yet Degree Insurance co-founder Wade Eyerly told us research shows money spent on their policies has a more cost effective impact on course completion rates among less well-off students than comparable amounts paid out through scholarships.
  • College revenues would be higher if the dropout rate declined. 

So there are several parties who would benefit from more students completing their courses, and more students going to college in the first place. 

Indirect competition

One of Degree Insurance’s closest competitors is a company called Meratas. Meratas’ product is called ISA (Income Share Agreement), which allows students to pay a percentage of their future earnings after graduation, rather than taking on debt to finance their education.

Another company that offers an alternative solution to traditional student loans is Climb Credit. Climb Credit partners with various educational institutions to offer student loans for career-focused programs that have a higher return on investment. Climb Credit uses data-driven underwriting to evaluate students’ potential for success in their chosen field and to offer competitive interest rates.

There are also a number of other financial technology (fintech) companies that offer various services to help students manage the cost of education, such as student loan refinancing, budgeting tools, and financial coaching. However, Degree Insurance’s unique focus on providing insurance to protect students from the financial risk of an inadequate income to repay student loans sets it apart from most of these competitors.

Originially published at Bold Awards

by Clive Reffell

Clive has worked with Crowdsourcing Week to source, create and publish content since May 2016. With knowledge and experience gained in a 30+ year marketing career based in London, UK, he helps SMEs and startups to run successful crowdfunding projects, and provides support across wider marketing issues.

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