Should college come with a money-back guarantee?

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This fall, colleges across the country will enroll roughly 3 million new students. For many of these students and their families, college will represent a tremendous expense—among the largest of their lifetimes. By the time they graduate, they can expect to have spent more money on their degree than many households in the United States earn in an entire year. And many will have accumulated tens of thousands of dollars in debt.

Why do so many students keep showing up year after year to pay this high price? Because they believe it will be worth it. They believe that the institution they’ve chosen will fulfill all of the promises made to them in the glossy recruiting pamphlets and during campus tours led by a charming upperclassman. But what if it doesn’t?

What if their degree takes longer than expected because the classes they need to take are oversubscribed? What if they can’t find a job in their chosen field after they graduate? And what if the job they do find doesn’t pay enough to make their student loan payments affordable? The answer: too bad. The student will still be on the financial hook. There is no money-back guarantee.

But why not? If your new car’s engine breaks down, the warranty will cover the cost of the repair. But that isn’t generally the case in higher education.

We often see guarantees for consumer goods and services when they are both expensive and complicated. And there’s a good reason for that. These purchases are risky. If an expensive purchase fails to meet a buyer’s expectations, it can have a big financial impact. A product or service that is complicated also poses a risk because it’s not easy for the buyer to tell whether it will turn out to be a “lemon.”

Guarantees give buyers the certainty that their purchase will deliver what they’ve been promised—making it a less risky endeavor—and they also push sellers to focus on quality and satisfaction. Higher education is a classic example of the expensive, complicated product for which guarantees would work well. Yet colleges have, until recently, managed to avoid being held to account by guarantees for the quality of their product and the promises of their advertising.

Now that may be starting to change, thanks to some innovative institutions that are offering guarantees in a variety of forms.

For instance, a number of institutions have started offering on-time graduation guarantees. With only 19 percent of full-time students at public, four-year universities actually earning a degree in that time, many students face the risk of extended enrollment, leading to significantly higher overall cost. Some colleges are addressing the institutional barriers, like course availability, that can be the cause of extended time to degree. For example, SUNY Buffalo created a guarantee program called “Finish in 4.” If students in that program fail to graduate on time after participating in advising programs, declaring a major by their second year of study, and taking a full course load each semester, then their tuition is free until they complete their degree.

Some colleges have begun offering guarantees on earnings. Adrian College in Michigan provides one example. It started a program, AdrianPlus, which guarantees that students will earn an annual income of at least $37,000 after graduation. If they don’t earn that much, the college will reimburse all or part of their student loan payments. This means it’s the college that’s on the hook financially if the degree doesn’t pay off—at least for graduates who took on student debt.

Other institutions are providing job placement guarantees to address the risk of unemployment (or underemployment) following graduation. For example, Udacity, an online program that offers “nanodegrees” in computer coding, announced earlier this year that it will guarantee students have a job within six months of graduating. Graduates who do not find work will get a full refund of their tuition. Not surprisingly, the fine print requires that students keep up their end of the bargain: In order to maintain eligibility for the refund, graduates have to work with a placement counselor and prove that they are aggressively seeking jobs.

Davenport University, also in Michigan, offers an example of another sort of guarantee. Not only does it promise that graduates will find employment after graduation, but it guarantees employment in the students’ field of study—also within six months of graduation. Since some surveys have suggested that as many as 60% of college graduates cannot find full-time work in their chosen field, that’s not a trivial promise. If graduates fail to find employment in their field, they can receive three semesters of additional coursework to supplement their degree at no additional tuition cost. As with the Udacity program, students must prove that they have been actively seeking work.

The introduction of guarantees is a significant innovation in the realm of higher education and one that fills an important deficit in the current system. With the growing problem of students not completing their degrees and the high-profile discussion about defaults on student loans, there is a renewed desire among students and their families to make savvy choices when it comes to higher education. Thanks to recent innovations in data availability, students are more empowered than ever before when it comes to being able to shop for college based on quality and value. Guarantees offer one more tool that can help students and families use higher education as an effective means for improving their financial future.

Learn more in this video on student loan debt: