Crypto Pays for College: What Higher Education Needs to Understand Before Diving into the Currency of the Future: Risk and Insurance

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Colleges and universities are toying with the idea of ​​using cryptocurrency as a form of tuition for certain classes. The expansion of this type of payment offers both risks and rewards.

Cryptocurrency payments are gaining momentum as industries outside of the technical realm continue to accept these digital assets in transactions. From real estate and e-commerce to your local pizzeria for Bitcoin Pizza Day, companies find interest in taking the currency of the future as a means of payment.

Even higher education.

“Everyone is paying more attention to crypto”, said Stacie Kroll, Managing Director, Higher Education Practice, Gallagher. “Higher education today is under incredible financial pressure. The industry has a limited number of students and is also under increased financial pressure from emerging from a pandemic. It needs to be more creative to compete, and the crypto gives universities that competitive edge.

Still in its infancy, crypto payments for universities and colleges tend to be geared towards more philanthropic purposes and/or specifically to pay for crypto courses, but that doesn’t mean a rise in crypto might not happen. grow even larger.

On the one hand, more universities are interested in accepting these types of payments.

The Wharton School of Business at the University of Pennsylvania made the headlines this year when he decided to accept Bitcoin, Ethereum and other cryptocurrencies for his six weeks Blockchain and Digital Asset Economics Course”.

In addition to Penn, King’s College in New York, California Intercontinental University, Bentley University in Massachusetts, and others also accept digital currency as tuition payment.

“There is a reputational opportunity with crypto that gives institutions the ability to be a frontrunner for such a new and potentially globally impactful technology,” Kroll explained.

But with this new revenue stream comes new exposure, and higher education institutions and their risk management departments need to weigh the risk and reward when giving crypto the good old academic test.

The Call of Cryptography for Higher Education

Higher education’s foray into the world of cryptocurrency began about five to ten years ago, according to Kroll, although the acceptance of crypto used for tuition payment is newer. She said the driving force behind this new wave of acceptance by higher education is mainly due to society.

Stacie Kroll, Managing Director, Higher Education Practice, Gallagher

“Crypto has become so popular in the mainstream that we cannot look away. We can no longer ignore it as a viable monetary option,” she said.

But the desire to accept crypto as a means of payment is due to more than its growing social popularity; Cryptocurrency offers an additional revenue access point where universities and colleges have never looked before.

“The high volatility of the past two years has contributed to [crypto] the benefit of investors. There has been a lot of wealth generated by people investing in crypto,” Kroll said.

Higher education receives funding in three distinct ways: through philanthropic fundraising and academic donations, through housing and tuition, and through ancillary services, such as rental of buildings for summer camps. summer and the like to third parties.

Cryptocurrency has, for most of its educational lifecycle, been accepted through philanthropic donations. In these cases, higher education uses a third-party provider to immediately convert the cryptocurrency to US dollars.

Universities and colleges accepting tuition in the form of crypto also use these third-party vendors for conversion assistance.

But now the conversation has turned to holding crypto as a physical (albeit digital) asset.

“Cryptocurrency is currency held outside of our traditional economic framework as we know it,” Kroll said. “[Facilities] are starting to wonder if they should own the asset and ride the wave of investing with it and potentially generate some of that wealth that we’ve seen over the past two years.

This opens the world of higher education to new risks, of course. Yet, as Kroll said, it is the currency of the future, and it would be remiss of the higher education sector to pass it up.

Where there are rewards, there are also risks

There is a level of financial volatility risk associated with cryptocurrency, and it is something that cannot be ignored.

Cryptocurrency is still a relatively new commodity, and since large volumes of crypto tend to be held by a few large investors, their decision-making can have a huge impact on the crypto market, adding to the volatility of the change.

Look to Elon Musk’s foray into crypto as a prime example. In February 2021, Tesla revealed a $1.5 billion investment in Bitcoin, driving up the value of the currency. In November, a single Bitcoin could trade for more than $68,000.

Related Reading: 5 Reasons Why Insuring Cryptocurrency Operations Is Difficult and Best Practices for Always Getting Coverage

But, a few months later, when Tesla said it would no longer accept Bitcoin as payment for its cars, the value of the cryptocurrency fell. Today, one coin is trading at $25,000.

And all in a few months.

The reports also show that cryptocurrency had a difficult year 2022 in general, thanks to high inflation, war in ukraine and changes in US monetary policyas Time reported in July.

June was also a volatile month, with multiple agencies reporting layoffs and trading platforms stop withdrawals.

Some of the volatility was felt so deeply and reacted so drastically whom CNBC dubbed on June 13 “one of the [crypto’s] the worst days of my life. This is because panicked investors dumped their holdings, causing the crypto market cap to plummet below $1 trillion.

Yet there is hope. Crypto Has Experienced Crashes Before, and as a highly speculative investment, many – like the higher education sector – want to see where crypto can take them. The desire to digitize and embrace technology keeps interested parties engaged in many ways.

However, it is essential to remember that not all cryptos are created equal. This can lead to further challenges in accepting it as payment or holding it as an asset and riding the wave of investments.

“There is a term called ‘stablecoin’ which indicates that a particular form of crypto is more reliable and more stable,” Kroll explained. A cryptocurrency that “is designed to have a relatively stable price, typically by being pegged to a commodity or currency or by having its supply regulated by an algorithm” is considered a cryptocurrency. stablecoin.

Bitcoin, for example, is one.

“Some schools are saying they will only accept stablecoins instead of accepting all forms of crypto,” Kroll said. This can remove some of the risk of financial volatility associated with accepting crypto payments.

However, introducing a third party into the conversion mix can also present a risk for universities.

Kroll cautioned, “Whether the university uses a third party for conversion or a third party for storage…they must consider the downstream risks.”

Universities and colleges will need to consider what the physical security of the third party looks like, are they insured for it, what happens in the event of loss, how are their assets protected by the third party, and more. More importantly, the higher education institution needs to know how the third party is valuing its assets, as currently there is no standard valuation process for crypto.

What Higher Education Risk Professionals Need to Know

Even with its unique set of risks, the appeal of cryptocurrency shines through, and there are several things the higher education team must consider in order to make crypto payment a reality for their institution.

For starters, setting up the right team for the job will go a long way.

Cryptocurrency acceptance will likely be led by the university’s CFO, but the CFO should not work alone. The institution’s financial auditor, tax professionals, risk manager, in-house crypto or blockchain expert (if available), and the legal department should all be involved in the crypto conversation in order to set up the acceptance of payments.

Each part of the team can bring insight into what the university or college may need, from the technical side of crypto to the financial impact and deciding how to store the digital coin. .

“Get this team together and start assessing all of these risks. Talk about the perks and benefits unique to your establishment. This team approach is going to give you an enterprise-wide view of the risks involved with crypto acceptance,” Kroll said.

“Financially, higher education is a bit risk averse, so I definitely see more institutions accepting crypto as payment and converting it immediately,” Kroll said. Ultimately, she said, widespread adoption will come down to federal regulation of the currency, with its volatility working in favor of education and college donors seeking to give to their alma maters.

Institutions are well positioned to lead the way in cryptocurrency, she added, because they are such a vital part of society. “We patiently wait and watch what institutions do as an industry,” she said. “Everyone is just waiting to hear what their experience is and what we can do next.” &

Autumn Demberger is content strategist at Risk & Insurance®. She can be reached at [email protected]


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