Brief - The Hustle

As tuition rises, college kids are buying insurance in case they have to drop out

Written by Conor Grant | Sep 23, 2020 1:24:29 AM

The Wall Street Journal reports that the number of tuition insurance policies is increasing rapidly — tripling from 20k to 70k plans in the past 5 years. 

As the cost of college increases, so does the cost of dropping out — and a lot of families are hedging their bets.

Tuition insurance has existed since the 1930s 

Believe it or not, once upon a time, students could fund college without getting run over by a financial freight train. But until recently, college tuition wasn’t as big of an investment as a car or house. 

But the times they are a-changin’. College tuition has risen almost $20k since 1988, pushing the average cost of private tuition to nearly $35k — making school a massive investment. 

Plus, while past pupils could reasonably expect to finish school, today’s students are dropping out of school more regularly — making tuition even riskier business.

Protecting an (uncertain) investment

Expensive college has taken more than just a financial toll: At many elite colleges, as many as 1 in 4 students are now classified as disabled due to mental health problems. As a result, the number of mental-health-related dropouts is increasing steadily.

Unfortunately for students who run into mental (or physical) health problems midway through the semester, most schools will only reimburse tuition for withdrawals at the beginning of a semester.

Since many tuition insurance policies only cost about 1% of tuition and entitle students to recoup 80%, an insurance policy costing $530 could reimburse $47.2k at a school that costs $59k.