Life Happens: Demand Up for Tuition Insurance as COVID Looms Over Another School Year

While young people tend to think they’re indestructible, accidents do still happen and can have big consequences for anyone in school. With the cost of private college education routinely topping $50,000, if sickness causes a student to withdraw — even for one semester — the financial consequences of that decision can put their entire future at risk.

Because truth be told, the unthinkable actually happens a lot more often than people think.

“A lot of people think students are young, they’re healthy, so why do they need this?”  John Fees, co-founder and Chief Executive Officer of GradGuard, told Karen Webster in an interview. “In fact, the truth is that a lot of chronic medical conditions actually emerge in the late teens and early 20s, especially around mental health.”

As Fees sees it, for a relatively small fee of around $400 per year, students can buy coverage of up to $30,000 in school fees, accommodation and other expenses that are often paid upfront. Unsurprisingly, GradGuard is seeing a lot of attention and demand right now for its tuition insurance product that aims to protect college and university students’ investments in the event they have to quit school due to health-related issues.

Similar to Travel

On its face, tuition insurance is similar in many ways to travel insurance in that a student or their family buys a policy that reimburses them for all or part of their tuition and associated costs should they be forced to withdraw from classes due to medical reasons.

But while travel insurance is often seen as something nice to have, Fees told Webster that protecting their investment in education has become a must-have for many families.

“I don’t think there’s any comparison. If I have to cancel a cruise or my vacation to Hawaii, that’s a big disappointment sure,” he said. “But when your son or daughter has a concussion or they become depressed and can’t go to school, that’s already a big concern. You don’t want the added stress of a $30,000 loss.”

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Outsourcing the Risk

What tuition insurance does, he said, is relieves the burden of the financial loss on parents who are already experiencing a tough time dealing with a child who’s basically gone off the path.

Of all life’s unexpected events, student tuition has been identified as an area of high risk due to the large nonrefundable expense that it carries. It’s a risk, Fees said, that is better carried by insurers than families.

“As the program manager we went out and found insurance companies to take that risk,” he explained.

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GradGuard works with schools to embed tuition insurance into the enrollment process. So at the time the student comes to pay the first part of his or her fees or sign a lease on housing, they’re offered the chance to protect themselves against any potential health problems that could stop them from completing their studies.

“Our goal is to enable every student to make an active choice,” Fees said. “I believe choice is really vital for students. It’s a part of financial literacy. Because this notion that a nonprofit institution should provide refunds is just unrealistic.”

98% Take on the Risk Themselves

According to Fees, out of 8 million undergrad students in the U.S., only around 200,000 or 2.5% have opted to buy such a policy. It’s a reality that Fees said is mostly a matter of awareness.

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Most families still have no idea what tuition coverage is, he said, and are more concerned about decorating their son’s or daughter’s dorm room, for example. One reason for that is that GradGuard doesn’t have such a big advertising budget because it needs to make its coverage affordable.

Another issue, according to Fees, is that many people don’t realize the severity of medical issues that affect students.

“These things are more severe, too. It’s not just a $300 airline ticket or a $3,000 cruise,” he added. “It’s a $30,000 loss on average. So, to pay $336 to protect against that loss, I think it’s a fair bet. I’m really proud of the affordability of this.”

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Affordability is essential if GradGuard’s model is to work. The company has seen relatively high claims rates, Fees admitted, due to COVID-19 and mental health issues.

“One of the reasons why this is a platform business is because we need schools to adopt this,” he said. “We need families to be aware of it because you can’t predict which students will suffer from mental health problems or get a concussion. But you know it will happen on a pretty consistent basis.”

Data from the American College Health Association confirms that. Medical-related dropouts are surprisingly high. For example, almost 160,000, or 2% of college students, suffer a concussion at some point while studying, according to the ACHA, and around 10 percent have their education interrupted as a result.

“We estimated that the four major medical conditions we see cost over a billion dollars a year in terms of students costs,” Fees said. “As parents we like to think that our kids are mostly invincible, but the reality is once they’re living on their own, they’re actually much more vulnerable.”