By Wade Eyerly (CEO) and Dennis Murashko (COO) are Co-Founders of the Education Insurance Corporation (www.eic.co)
‘We have nothing to fear but fear itself,’ said that great American leader Franklin D Roosevelt in his inaugural address in 1933. It’s not only a great line, but also a foundational tenet of liberal democracy. The words have echoed down the ages, to be sure. Many today, however, would be forgiven for feeling the rhetoric over the traction.
In an age of populism, insecurity, financial squeeze and trade wars, you could say the pessimism experienced by many is historic. For individuals at the lower end of the economic scale, it’s never been more difficult to share the optimism and faith in a system that is held up as the world’s best model. The system has undeniably benefitted some more than others.
That economic model deserves its success but it is undergoing a revolution – we are seeing new applications of purpose, through tech and new understandings of markets and their social applications, from transport, to welfare, to insurance.
Insurance has underpinned and enabled the success of capitalism, guaranteeing ventures and investment and safeguarding us from financial and physical risk at all points of life – from car journeys, to jobs, to healthcare. All of that is valuable to the economy: healthy and financially secure people live longer and contribute more in taxes and production. What’s more, they are happier and less susceptible to mental health challenges and destructive behaviour.
But one place we really need a revolution in insurance is in how we apply it to education. Like healthcare, education is imperative to a functioning, efficient, fair, and rewarding economy. It is no surprise that those communities blighted by poor health, low life expectancy, and low income are also those with low levels of education. In the US especially, the level of success you achieve in pretty much every area of life can be determined by one simple question: “did you graduate from college?”
For those that answer “yes”, the picture is rosy: college graduates are likely to earn over $1 million more in their lifetimes than those who didn’t achieve a degree.
For those that answer “no”, the picture is depressing: As well as earning $1 million less, those without a high school degree are likely to die a decade sooner than their graduate peers.
There is potentially an even worse scenario: those who answer “yes” to the question ”Did you attend college but fail to graduate?” These individuals, often wary of accruing excess debt and unconvinced they will land a wage high enough to pay it off, will drop out a few years into college. In some cases, this non-completion rate is shockingly high, with graduation rates hovering in the teens or low twenties, meaning that for every 100 incoming freshmen, only about 20 will graduate in six years with a four-year degree.
The chief driver of such tragic dropout rates in our nation’s universities is driven by a fear of limited prospects, of debt and of bearing that burden while entering a stagnating economy. These individuals have heard that there’s $1.5 trillion in outstanding student debt. That sum of money is about 7.5% of GDP. Student debt has created 44 million borrowers, with an average outstanding balance of $37,000 which looks to be rising: the New York Fed recently reporting an increase of about 15% per annum. Looking at this, today’s freshmen may think their summer bar work is a better option that a degree underpinned by debt (tragically, they are seldom told that bartenders with degrees earn more, and are employed more consistently, than those without).
When it comes to proving our education system and our economy, we can and should look to insurance to guarantee that the former fully supports the latter. By removing that drop out rate, we can help some of the poorest in our society to matriculate as high earners. At a raw economic level, that will increase the tax take, the brainpower, and dynamism of an economy facing global challenges. This can be achieved by very simply providing universities with an insurance product that guarantees a predicted level of income following graduation, making up the shortfall until that is achieved.
Under the current status quo, our students are giving into fear at precisely the moment it is most important to persevere – but who can blame them? We need to give them the faith in our system that has made it so compelling to the nation’s narrative. We need to show them that the American Dream is real. Insuring that dream provides a strong incentive to graduate and creates a two-way faith: that they will graduate and that they will earn; that they will pay their fees and debts and that the university will benefit and prosper. We can show our young people that they shouldn’t fear the cost of education; that is a true mark of an enlightened economy. Indeed, isn’t it the very American social contract: guaranteeing that hard work will be rewarded?