How Tuition Refund Insurance Can Protect Your Investment

by Tom Fragala   

Many parents worry about how they'll pay their children's college tuition, and they'll often go to extreme lengths to ensure their kids go to college, cobbling together a patchwork of funding that could include personal savings, federal or private student loans, and scholarships, if they're lucky.

Unfortunately, parents can't guarantee their children will matriculate. Even if grades aren't an issue, unexpected crises may occur during the course of the year, including illness, accidents or personal family issues that force a student to drop out of school.

With the average annual college tuition at a four-year private school now exceeding $32,000, losing even a semester's worth of tuition money would be painful for most families.

Tuition refund insurance can help protect families' financial interests in the event that illness or personal issues force a student to leave school before graduating. (Some tuition refund insurance plans may also optionally cover the job loss or job transfer of the tuition payer, or losses incurred as a result of academic or disciplinary dismissal.)

How tuition refund insurance works

Parents pay an insurance premium prior to enrolling the student. If a "covered" situation arises and the student must leave school, the insured party receives a payment that reimburses all or a portion of tuition fees. (Tuition refund insurance coverage also covers the school or university to protect them if students drop out.)

Tuition refund insurance may cover medically necessary withdrawals, mental and nervous disorders leading to withdrawal, the death of a parent or other adult who paid the tuition, the death of a student, and school closures due to epidemic. Any parent seriously considering tuition refund insurance should carefully review what is and isn't covered.

Tuition insurance policies are offered through schools by several insurance companies and usually cost up to three percent of the total tuition cost. Because many universities already have fairly generous refund policies in place, and because most state colleges have much more affordable tuition, tuition refund insurance makes the most sense for families which are sending their child to a high-cost, private institution.

At Bowdoin College, for example, the college's own refund policy, along with the tuition refund insurance plan, ensure that a student leaving school mid-semester for medical reasons will receive a maximum 80% refund of tuition.

Bowdoin charges between $344 and $437 for the insurance, depending on whether tuition, room and/or board are covered.

At the University of New Hampshire, a public school, elective tuition refund insurance permits students to recoup 100% of tuition, room and board and mandatory fees for medical reasons, or 60% of costs if they leave due to medical/psychological reasons. The insurance costs between $100 and $173 for New Hampshire residents and between $215 and $288 for out-of-state residents.

At some schools, tuition refund insurance is included in the cost of tuition, and premiums are paid for by the school. Sometimes, parents are required to pay for tuition refund insurance unless they pay the entire tuition for the term in advance. Tuition refund insurance is also offered by some schools on an opt-out basis — parents are automatically charged for it unless they decline coverage in writing. Still other schools offer tuition insurance on a purely voluntary basis.

For more details, contact the school your child plans to attend.