Loans and degree insurance can be self-defeating (opinion)

Imagine you are the parent of an incoming college student who wants to study theology, one of the lowest-paying majors after graduation. You’re proud of their beliefs, but also anxious because friends and family are constantly reminding you that theology is a profession whose career prospects are uncertain at best. Then, in the height of college decision-making, you learn that the colleges your kids are considering offer something called “degree insurance”: If your graduates don’t earn more than a set threshold, the program will step in to make up some of the gap.

This commitment is intended to allay the fears of parents and students. However, it raises a deeper question: Why is insurance suddenly needed when a college degree, still the most reliable path to economic progress and long-term financial stability?

Colleges and universities across the country are launching a new suite of financial products aimed at undergraduates, marketed as “loans” and “degree” insurance. The Loan Repayment Assistant Program (LRAP), sometimes called a Loan Repayment Guarantee, is a type of loan insurance designed to protect students from default: If a graduate’s income does not exceed a certain threshold, their student loan payments will be repaid by a certain amount. Degree insurance is a mechanism similar to a public “wage insurance” scheme that will “make up” the wage difference over a period of time if a graduate earns less than the regional average in their field.

The two tools have different origins and rationales. The Loan Repayment Assistance Program (LRAP) originated at Yale Law School in the 1980s and later spread to other law schools as the rising cost of legal education began to discourage graduates from pursuing low-paying public interest careers. Although they began as an internal source of funding, privatization of LRAP products and the pursuit of profit have driven the industry’s expansion into new markets, namely undergraduate education. In fact, Ardeo Education Solutions was an early and well-known player in the field, founded by Peter Samuelson, a Yale Law School graduate who himself benefited from Yale’s loan assistance program. Ardeo is positioned to give families peace of mind about the risk of taking on debt to pay for an undergraduate education, “increasing access to the life-changing impact of higher education” and freeing students from having to “choose between their passion and their salary.”

Degree insurance products take a different approach. Degree Insurance, which counts Augustana College in Illinois as a client, leverages the cultural cachet of the American Dream to market itself as an income equalizer; its flagship product, American Dream Insurance, guarantees “equal pay for equal work” and that “graduates will not earn less than their peers regardless of race or gender because everyone will have the same safety net.” This is insurance against the uncertainty and inequality of the labor market as well as the personal vulnerabilities of any given candidate.

While the scope and impact of the field is currently difficult to assess, Ardeo Education claims it has provided LRAP to more than 30,000 students at more than 200 U.S. colleges and universities. Participating institutions include a number of small religious colleges, such as Lyon College and Mid-America Nazarene University, as well as public research universities such as Eastern Michigan University. Eligibility for repayment assistance generally requires graduating from the provider institution, working full-time (30+ hours per week), and being below the income limit.

The expansion of LRAP and degree insurance to undergraduate programs represents a new dimension in higher education risk management, which has gone through several phases since colleges and universities began responding to an increase in personal injury and campus safety lawsuits in the late 20th century. These risk management plans, customized to protect organizations, eventually expanded to include Title IX, occupational safety and health management requirements, environmental regulations, reputation management, crisis communications, cybersecurity, and, most relevant to this topic, financial sustainability. Loan and degree insurance represent the latest iteration of such efforts.

Currently, universities typically cover the cost of these courses, but it’s unclear how much of the cost is passed on to students through tuition. How students are selected for these programs is also opaque. Institutions are free to decide to which students and majors they offer the course. For example, Augustana College’s website says it offers free degree coverage to students, but participation is on an invitation-only basis.

There are, of course, reasons to defend these plans. Scrutiny of the student loan system that contributed to the student debt crisis has intensified across the political spectrum, as policymakers on both sides of the aisle recognize the harm it causes (even as they disagree on solutions). LRAP and degree insurance can reduce loan default rates and provide peace of mind to low-income families who are unable to save for college and unwilling to take out loans to pay for college.

In an increasingly competitive environment for students, admissions professionals view offering LRAP and degree insurance as a competitive advantage. Loan repayment and degree insurance schemes also encourage students not only to attend college generally, but to pursue degrees with more challenging career prospects, which are also often at risk of being cut due to low enrollment. This is becoming increasingly important given the almost daily news of project closures.

The emergence of these financial instruments is perhaps an understandable response to the rising cost of a college education, increased competition for students, stagnant wages overall, and shifting public perceptions of the purpose, value, and outcomes of higher education. However, adoption of these tools is not straightforward driven This view is reinforced by the current popular perception of university education as a risk.

These programs are more than just a new, neutral financial option for students. By extending the logic of institutional risk management to students’ economic futures, these tools reinforce the troubling and potentially self-defeating notion that a college degree itself is a financial risk to be protected, rather than the surest path to upward mobility and a critical component of our continued economic and cultural prosperity. Their adoption by universities reflects the “short-termism” that has increasingly become a hallmark of higher education strategy. As more institutions inevitably adopt these programs, it’s unclear how long they will remain competitive. Additionally, as this trend spreads, we may see the labor market react with employers further lowering entry-level wages when factoring in insurance spending. In fact, like many aspects of higher education today, it feels like a race to the bottom.

It is difficult to compare insurance products with other forms of income or employment security. Should families prioritize colleges with strong academic records (e.g., 70%+ graduation rates and reassuring post-graduation employment statistics), strong alumni networks, or loan and insurance programs? It is too early to tell what consequences transferring risk to third parties—a common higher education risk management strategy—might have on students and institutions in the long term. Moreover, it further financializes education so that in the process of character formation, managing risk, rather than other values ​​or logics, becomes central to identity.

Colleges and universities may want to ask themselves whether it is in their long-term interest to view a college degree as a risk. Loans and degree insurance products can generate short-term enrollment increases, ease family anxieties, and even encourage students to choose majors that are often considered less “marketable.” Over the longer term, however, these strategies alleviate pressure to address underlying structural challenges such as rising costs, stagnant wages and a flawed lending system. Ultimately, they undermine our ability to promote higher education as a public good, putting the future of the entire enterprise at risk.