Biden won’t forgive debt, but colleges can’t keep failing grads

US President Joe Biden speaks in the Roosevelt Room of the White House in Washington, DC, US, April 28, 2022. /CFP

US President Joe Biden speaks in the Roosevelt Room of the White House in Washington, DC, US, April 28, 2022. /CFP

Editor’s note: Wade Eyerley is the founder and CEO of Degree Insurance Co. The article reflects the views of the author and not necessarily those of CGTN.

The Great Resignation left America with a labor shortage. Critical industries like healthcare, education and manufacturing have been particularly hard hit. Growth industries, like alternative energy and artificial intelligence, simply don’t have the skills to meet demand.

Filling this void will take generations. However, we don’t need to look too far to understand how this will be done. America has the best higher education system in the world, and it is by investing in these colleges and the students who attend them that it will close the gap. It is, however, the least confident generation in American history.

We can’t convince our future Einsteins, Edisons, or Musks to go to college if they think it won’t work. Most students go to college to make more money when they graduate, and when they quit without a degree, it’s often because they’ve lost faith in that future. But we could insure college graduates for the salary they are expected to earn after graduation, subject to their respective field.

If a student opts for a degree in, say, nursing, manufacturing, or AI, a college could guarantee a median income level, giving students the confidence they need to continue their education. It wouldn’t be hard to see how students might react to college marketing, “State U, where business majors are guaranteed $220,000 within five years of graduation.”

To fill our labor shortages, it’s time to step up and take the risk of going to college. After all, we’re doing a great job enrolling about 15 million new undergraduates in recent years. What we don’t do well is graduate with the same number.

Forty percent of undergraduates drop out before they graduate. These are the students materially harmed by having attempted university. The majority of students who default on their student loans borrowed less than $10,000 and did not graduate. If asked, 8 out of 10 students will answer that “it costs too much” as a reason for dropping out.

In reality, it’s usually not that they couldn’t borrow more to attend, it’s that they don’t think it’s worth it anymore. The sad truth is that they are wrong.

During the Great Recession, the unemployment rate reached 10%. Black unemployment reached 21.2%. Yet the unemployment rate for university graduates peaked at 5%. A college degree is essential for getting and keeping a job.

Students are seen on the campus of the University of California, Los Angeles (UCLA), in Los Angeles, the United States, Sept. 23, 2021. /Xinhua

Students are seen on the campus of the University of California, Los Angeles (UCLA), in Los Angeles, the United States, Sept. 23, 2021. /Xinhua

During the pandemic, people without a college degree saw unemployment rates rival the Great Depression. Those who have a degree? They worked from home. The best thing you can do to protect yourself from an economic downturn is to have a degree. A college degree can change a person’s earning potential, but the biggest impact is that it raises the earnings floor. Ultimately, a degree is the best buffer against recession.

Getting students into college is one thing, but helping them graduate is a bigger challenge. Insurance is a classic cover of a risk. It is a particularly effective tool for an unusual risk. And the data is clear. Obtaining a university degree works very well. But, no individual is an average. So, in case your degree doesn’t work out for you, you’ll be able to make a claim against the insurance – guaranteeing you a floor of earnings, precisely because you graduated.

Degree Insurance has created such a product. Sold primarily to colleges, although governments can also be purchasers, the degree will guarantee a graduate’s median earnings within five years of graduation. The level of guarantee depends on the major. The engineering major could be guaranteed an annual salary of $51,000, the business major $44,000 and English $38,000. Covering these students for five years after graduation and giving them a one-time lump sum payment at the end of that period avoids incentivizing short-term action to avoid work.

In addition, the insurance covers the return on investment of the degree – meaning that it covers the distance between a floor of income (for example, what you could have earned without a degree) and the amount covered.

Basically, a college education is the biggest uninsured investment most people make. It’s the only place a parent would advise a child to borrow 10 or 20 times their net worth, make a single investment, and then hope it pays off in five years. We got away without insuring that risk for generations, because investing works so well.

By securing this investment now, we can encourage a new generation of students to enroll and complete, creating a competitive talent pool and a pathway to a brighter future, for students, their families, and our nation.

New realities demand new thinking: insurance for college degrees could be the innovation we need to close the gaps and ultimately rebuild our post-pandemic economies.

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John A. Bogar