Today families and students prepare for the cost of college by saving money each year starting in childhood, and / or taking on debt. What if we could create a third option? What if families could purchase "long term education insurance" that would pay the cost of college when a child attends college in the future?
My idea is a new financial product. It tackles the huge problem of families and students trying to save enough money for college or payoff large loan payments. It addresses the problem through a new type of higher education insurance that, like health and other types of insurance, spreads the costs across a population or "risk pool" so an individual family doesn't need to cover the full cost of a degree on its own.
The Benefit: Lower Costs for Families
Education insurance is a complex financial product with new rewards and new risks for families. Our experiments suggest a solution is possible and worth further exploration. A purely market-based solution could provide families with a more affordable solution for college -- as low as 1/2 to 1/5 the cost of using savings or school loans, with options that could be as inexpensive as $25 to $100 per month for lower income families. A large-scale insurer that negotiates tuition prices with universities could help curtail tuition inflation and generate further savings. A hybrid market/government or market/donation solution could extend education insurance to reach every family at any income level.
The Solution at Scale
Education insurance would create a new, large scale, powerful player in the education market. The financial product -- insurance -- provides the mechanism for funding education at a lower cost for each family. The insurance provider's position as the financial agent for tens of thousands of families creates something even bigger: a new collaborative system for financing higher education that brings powerful institutions and families into a single community. You can think of the full scale solution as a very large "insurance company" or as a "tuition co-op" serving thousands of members (both are accurate).
The concept is scalable to cover all students in the US. In fact it should become more affordable and viable the larger the business scales by 1) spreading risk across a larger risk pool, and 2) creating a powerful new market player that can negotiate controls on tuition on behalf of families and students. Education insurance can be brought to scale as a product offering from an existing financial institution, a new social benefit business, or a government agency.
Details, Experiments, and Refinements
We have used a series of prototypes over the course of this challenge to explore consumer interest in and the business viability of higher education insurance. The following documents provide all the detail on the experiments and what we learned.
Click the link to read the initial thoughts on the idea of education insurance and its relationship to long term care insurance.
The initial thoughts on how a large scale insurance organization could act as a cost control on tuition by negotiating prices with universities.
We summarize the critical assumptions for the concept that need to be tested. We also capture some of the open design questions identified during this work that need to be explored in further product development.
We look at what the buying experience could be like for a family planning for college for their first child.
We use a short video and survey to test consumer reactions to this new approach to financing college. These initial conversations showed the excitement around the idea and the places where there was the most skepticism.
We prototype the financial model for an education insurance business to figure out the cost of offering $1 of college insurance coverage. The experiment looks at a for-profit approach, a social benefit business approach, the impact of higher efficiency in operations, and the possibilities for a hybrid market/government or market/donation solution. The write up includes a summary of findings and a link to the full spreadsheet model.
We use a survey to understand the financial constraints and priorities of lower income families where the parents do not have a college education, and test their reactions to the insurance concept. The write up includes a summary of findings and a link to detailed response data.
We test the insurance packages and prices that could be offered to lower income families using a prototype for future college costs and education insurance. The write up describes some suggested packages, summarizes findings, and provides a link to the underlying spreadsheet model.
A look at where these experiments ended up and where the project should go next.