By Bernard Lunn
The old wisdom was that your biggest financial decision was which house to buy and how to finance it.
That has been replaced by the higher education decision – whether to invest in getting a college education and if so which college and then how to finance it.
In the old days, the ROI of higher education was blindingly obvious. However then both sides of the ROI calculation changed:
Investment. Inflation in College Education is rising far faster than general costs of living and even healthcare. In the USA, the data (from College Board) is staggering. During the period 1978 to 2008:
– Cost of living = 3.25x
– Medical costs = 6x
– College tuition and fees = 10x
Return. The question is: How Much More Do College Graduates Earn Than Non-College Graduates? This site has some data.
The answer is still that there is a big Return on Education. With labor markets going global, salaries may go down but it is worse without a college degree. Logically, if you can get a college education you should. The problem for families without a lot of money is still how to pay for it when current salaries and savings have been depleted by the great recession. It is like saying that owning your own home is financially smarter than renting – meaningless if you cannot find the money for a deposit.
Also, many people graduating into the Great Recession lost many years of earning power, making the debt more difficult. I also graduated into a deep recession and it was difficult, but I was not loaded with college debt. Take away a few years of that earning power and the ROI math changes. Take away those early fast promotion years and the ROI math changes.
Education Fintech startups can only nibble at the edges of that challenge. To really change the Education ROI, you have to make Education a lot cheaper and have good jobs waiting for people when they graduate. You cannot fix that with some code and some venture capital.
This is a big political debate. The socialist view is that college education should be taxpayer funded. Bernie Sanders is taking that debate to America. Hillary Clinton has policies to make college education more affordable. The UK is – as usual – somewhere between Europe and America with costs rising but still way lower than in America.
This is fundamentally a US market opportunity but one that UK entrepreneurs can relate to. Here are three Fintech startups coming at this elephant of an opportunity from different directions:
SOFI do debt consolidation for people who already have a lot of college debt. They have some smart investors including:
You can see why SOFI raised $766m. For years nobody questioned the value of education and just loaded up on debt. Now the debt is biting, but many college graduates do have good jobs and so they offer a good creditworthy profile.
Principly tackles this the old fashioned way which is making it easier to save for college. This is a young Silicon Valley startup that did a seed round in June.
EdAid is interesting because they they claim to be able to offer interest free loans via crowdfunding. They are still in beta, so I cannot see how they do it. The word Aid and zero interest makes me assume this is in the same mould as Zidisha ie a way for people with money to fund a worthy cause in innovative ways.
The underlying problem is the ever-rising cost of college education. It will take a revolution in Edtech to fix that. Fintech can only nibble at the edges of the Education cost problem, but given the massive scale of the Education market, even nibbling at the edges leaves room for many startups to prosper.
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