Crypto Pays for College: What Higher Education Must Understand Before Delving into the Coin of the Future
Cryptocurrency payments are gaining traction as industries outside the technical realm continue to accept these digital assets in transactions. From real estate and e-commerce down to your local pizza shop for Bitcoin Pizza Day, businesses are finding value in taking the currency of the future as payment.
Even higher education.
“Everyone’s paying more attention to crypto,” said Stacie Kroll, managing director, higher education practice, Gallagher. “Higher ed is under incredible financial pressure today. The industry has a limited supply of students and also has the increased financial pressure of coming out of a pandemic. It has to be more creative to compete, and crypto is offering universities that competitive edge.”
Still in its infancy, crypto payments for universities and colleges tend to be geared toward more philanthropic purposes and/or specifically for paying for crypto courses, but that does not mean a crypto surge might not gain even more momentum.
For one thing, more universities are interested in accepting these types of payments.
The Wharton School of Business at the University of Pennsylvania made headlines this year when it decided to accept Bitcoin, Ethereum and other cryptocurrencies for its six-week “Economics of Blockchain and Digital Assets” course.
In addition to Penn, King’s College in New York City, California Intercontinental University, Bentley University in Massachusetts and others are also accepting digital currency as tuition payment.
“There’s a reputational opportunity with crypto that gives institutions the ability to be a front runner for such a new and potentially globally impactful technology,” Kroll explained.
But with this new revenue stream comes new exposures, and higher education facilities and their risk management departments must weigh the risk and reward when giving crypto the good ol’ college try.
The Crypto Appeal for Higher Ed
Higher education’s foray into the cryptocurrency world started about five to 10 years ago, according to Kroll, though accepting crypto used for tuition payments is more novel. She said the driving force behind this new surge in acceptance by higher ed is, primarily, because of society.
“Crypto’s become so popular in mainstream that we can’t look away. We can no longer ignore it as a viable currency option,” she said.
But the desire to accept crypto as payment is due to more than its growing social popularity; cryptocurrency offers an additional revenue access point where universities and colleges haven’t looked before.
“The sharp volatility of the last couple of years has worked to [crypto] investors’ advantage. There’s been a lot of wealth generation from folks investing in crypto,” said Kroll.
Higher education receives funding in three distinct ways: from philanthropic fundraising and academic donations, from room and board/tuition, and through auxiliary services, such as renting out buildings for summer camps and the like to third parties.
Cryptocurrency has, for the majority of its life cycle in education, been accepted through philanthropic donations. In these instances, higher education leverages a third party vendor to immediately convert the cryptocurrency into U.S. dollars.
Universities and colleges accepting tuition in the form of crypto are also leveraging these third party vendors for conversion assistance.
But now the conversation has turned toward holding crypto as a physical (albeit digital) asset.
“Cryptocurrency is a currency held outside of our traditional economic framework as we know it,” Kroll said. “[Facilities] are starting to ask if they should hold the asset and ride the investment wave with it and potentially generate some of that wealth we’ve seen over the last couple of years.”
This opens the higher education world to new risks, of course. Still, as Kroll said, this is the currency of the future, and it would be remiss for the higher education sector to pass it up.
Where There Are Rewards, There Too Is Risk
There’s a level of financial volatility risk that comes with cryptocurrency, and it’s something that can’t be ignored.
Cryptocurrency is still a relatively new commodity, and because large volumes of crypto tend to be held by a few large investors, their decision making can vastly impact the crypto market, adding to the currency’s volatility.
Look at Elon Musk’s foray into crypto as a prime example. In February 2021, Tesla revealed a $1.5 billion investment in Bitcoin, causing the currency’s value to soar. By November, a single Bitcoin could trade for over $68,000.
But, a few months later, when Tesla said it would no longer accept Bitcoin as payment for its cars, the cryptocurrency’s value plummeted. Today, one coin trades at $25,000.
And all within a few months.
Some of the volatility was felt so deeply and reacted to so drastically that CNBC dubbed June 13 “one of [crypto’s] worst days ever.” That’s because panicked investors dumped their holdings, sending the crypto market cap plunging below $1 trillion.
Still, there’s 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 invested in more ways than one.
However, it’s key to remember that not all crypto is created equal. That can lead to other challenges in accepting it as payment or holding it as an asset and riding the investment wave.
“There’s a term out there called ‘stablecoin’ that indicates a particular form of crypto is more reliable and more stable,” explained Kroll. A cryptocurrency that “is designed to have a relatively stable price, typically through being pegged to a commodity or currency or having its supply regulated by an algorithm” is considered a stablecoin.
Bitcoin, for example, is one.
“Some schools are saying that they will only accept stablecoins instead of accepting all forms of crypto,” said Kroll. This can eliminate some of the financial volatility risk associated with accepting crypto payment.
Introducing a third party into the conversion mix can also pose risk for universities, however.
Kroll cautioned, “Whether the university is leveraging a third party for conversion or they’re leveraging a third party for storage … they need to consider the downstream risks.”
Universities and colleges will need to ask themselves what the third party’s physical security looks like, are they insured for that, what happens in the event of a loss, how are their assets being protected by the third party, and more. Most important, the higher education facility should know how the third party is valuing their assets, because, at this time, there is no standard valuation process for crypto.
What Higher Ed Risk Professionals Should Know
Even with its unique set of risk, cryptocurrency’s appeal shines through, and there are several things for the higher ed team to review 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 is likely going to be spearheaded by the university’s chief financial officer, but the CFO should not be working alone. The institution’s financial auditor, tax professionals, risk manager, in-house crypto or blockchain expert (if available), and legal should all be brought into the crypto conversation in order to set up payment acceptance.
Each portion of the team can bring insight on what the university or college may need, from the technical side of crypto down to the financial impact and decision making on how to store the digital coin.
“Bring that team together and start evaluating all those risks. Talk about the benefits and the benefits specific to your institution. That team approach is going to give you that enterprise-wide look at what risks are on the table with accepting crypto,” Kroll said.
“Financially, higher education is a little bit risk averse, so I definitely see more institutions accepting crypto as a payment and converting it right away,” Kroll said. At the end of the day, she said widespread adoption will come down to the currency’s regulation at the federal level, its volatility working in education’s favor and universities’ donors looking to give to their alma maters.
Institutions are in a great place to lead the way for cryptocurrency, she added, because they are such a vital piece of society. “We’re patiently waiting and watching what institutions are doing as an industry,” she said. “Everyone’s just waiting to hear what their experience is and what we can do next.” &