As college tuition continues to rise, students often weigh the cost-benefit of obtaining a degree. While earning a degree can lead to higher salaries and better job opportunities, there are also hidden benefits that are often overlooked. One such benefit is the impact of a degree on car insurance costs.
Many insurance providers offer discounts to those with college degrees, citing research that shows drivers with higher levels of education tend to be safer on the road. However, the relationship between education and car insurance costs is not always straightforward, and there are several factors to consider when examining this connection.
Read on to learn how having a college degree affects car insurance rates and whether you qualify.
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Does Having a Degree Impact Car Insurance Premiums?
Education affects car insurance premiums, but it is not as consequential as other factors. In fact, some insurers may not use education to formulate premiums at all.
National average car insurance costs for individuals with a GED or a high school diploma are nearly double the rates people with bachelor’s degrees receive. Though a large discrepancy, many other factors come into play here besides insurers offering lower rates to graduates. Individuals with less educational credentials often have tighter budgets, live in neighborhoods deemed riskier by insurers, and drive cars with fewer safety features.
Insurers base their rates on their perception of your risk of filing a claim. To determine risk, insurers factor in all your demographic information and personal history. While traits like age and driving history more significantly dictate your final premium, qualities like gender, income, education, and the car you drive can impact how much you pay for coverage.
Why Does Education Affect the Cost of Car Insurance?
Education affects the cost of car insurance rates in convoluted ways, not merely connected to your degree. For example, many teen drivers that haven’t started or finished college still need to buy car insurance. Due to their lack of driving experience, drivers between the ages of 16 and 19, too young to have finished college, have a fatal crash rate three times higher than drivers aged 20 or older. The surplus of claims generated by these accidents equates to higher rates for other teens seeking coverage.
There is also other evidence that directly links higher mortality rates to drivers with lower education levels. While these analytics indicate that individuals who stay in college longer less commonly wreck their cars, viewing the problem through this lens does not tell the whole story. Put simply, your 15 years of driving experience has much more influence over your road safety and insurance premium than your Ph.D. in English Literature.
When Does Education Not Affect the Cost of Car Insurance?
Although driving experience plays a more significant role in accident rates than your actual education level, many insurers will still charge more for drivers with GEDs or high school diplomas. However, some states prohibit insurance companies from factoring education into their risk assessment system, specifically California, New York, Hawaii, Georgia, Montana, and Massachusetts.
Lawmakers in these states believe insurance companies practice discrimination by assessing someone’s education in their policy decisions. Lower-income children often lack the means to pursue higher education. Many advocates have pointed out the similarities to redlining and other questionable practices utilized by insurers to exclude families of color from coverage.
Which Insurers Do Not Adjust Rates for Education?
The following companies do not adjust rates based on a customer’s career or education level:
- Allstate
- Traveler’s
- State Farm
- Plymouth Rock
- NJM Insurance
If you have other concerns about your education affecting insurance rates, ask your tentative insurer upfront before committing to a new policy. Other providers not listed here may provide some marked exemptions or offer separate discounts.
By The Numbers: Educated Adjusted Auto Insurance Rates
Even if your insurer factors education into your risk assessment, it should not amount to too much. On average, someone with a Ph.D. would only save $27 more per year on car insurance than somebody with a GED, as further illustrated on this chart:
Education | Average Annual Premium |
|---|---|
None | $1,791 |
High School Diploma / GED | $1,782 |
Bachelors Degree | $1,760 |
Masters Degree | $1,757 |
Ph.D. | $1,757 |
Drivers with doctorates and master’s degrees pay the least for car insurance, though they only save $3 more per year than individuals with bachelor’s degrees.
Remember, these figures lack context, with education the only external influence over car insurance rates. While insurance companies see higher educated drivers as less likely to take risks, other factors like their age, driving record, history, and location play a much more significant role in the ultimate sum of their premiums.
GEDs vs. High School Diplomas
Typically, high school dropouts who do not pursue a GED pay more for car insurance than any other demographic. On average, individuals with no educational credentials stand to lose an extra $9 per year than somebody with a high school diploma.
However, if that client were to attain GED certification, most insurance companies would see them as an equal risk to someone with a regular high school diploma and provide them the same rates they would for a conventional high school graduate.
How Does This Affect Recent Graduates?
While finishing school should technically lower auto insurance rates over the long term, most seniors should expect a bump in their premiums immediately after graduating. As previously stated, many factors come into play when deciding insurance rates, including a person’s credit score. Student loan debt directly impacts your credit score, raising your risk level and insurance premiums in tandem.
Additionally, many active students receive good student discounts on their auto insurance for high achievement. These discounts often grant 10-25% price breaks on car insurance for qualified students who remain enrolled in school or are under 25. “Good students” who graduate and do not return for a subsequent diploma will lose their discount and instantly begin paying higher rates.
How Long Does It Take After Graduation for Premiums to Subside?
Premiums can take quite a while to subside following graduation, depending on your insurance company and personal situation. Drivers who maintain a clean driving record for five years will receive lower auto insurance rates than individuals involved in multiple claims or violations. Similarly, paying down your student loans on time should ensure an eventual drop in your annual premium.
All insurers impose different rules and offer occasional allowances, so try to shop around and find the plan that best remunerates your situation. You should also research insurance laws in your state, as not all states allow insurers to use your credit score in their rating system.
Can I Still Get a Good Deal on Insurance if I Don’t Have a Degree?
Even if you do not have a degree, many alternatives exist to secure a good deal on car insurance. Most insurers offer simple discounts that can incrementally reduce your premium, including:
- Good driver
- Multi-policy (bundling auto and renters insurance, etc.)
- Telematics
- Autopay
- Paid in full
- eSignature and paperless billing
- Multi-vehicle
You should also choose and use your coverage wisely. If you own an older car worth less than $4,000, don’t take out additional coverages like comprehensive or collision that might not realistically pay off. Handle minor scrape-ups and fender benders out-of-pocket instead of filing claims that would raise your rates long-term. Likewise, electing to pay higher accident deductibles will ultimately lower your premiums.