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Does tuition refund insurance make the grade?

Congratulations on your child getting into college. By now, you’ve probably received a financial aid package, as well as letters or emails about college tuition refund insurance. If your son or daughter has to withdraw from school, this type of insurance can give back some of the tuition money.

Before you enroll in such a plan, though, take time to read the fine print, financial aid experts and college counselors suggest. While these plans make financial sense for a select few, college tuition refund insurance may not be right for most students and parents. Still, insurance professionals insist that this type of coverage can be a good investment.

Premiums for college tuition refund insurance range from 0.75 percent to 5 percent of the insured amount. Translation: a premium of $100 to $1,000 a year, depending on the school's tuition costs and claims history, according to Mark Kantrowitz, publisher of FinAid.org, a college financial planning website.

insurance tuition refund

Refunds with and without insurance

College tuition refund insurance bridges the gap between what a school will refund on its own and how much actually was paid. Under most tuition refund insurance plans, a student's withdrawal must be triggered by something like an accident or illness before the benefits kick in. If your kid just wants to drop out, these insurance plans won’t refund a dime.

In most cases, colleges and universities will refund tuition if a student withdraws. The amount of the refund is based on how many weeks of a semester already have passed, says Mary Ellen Duffy, director of financial aid for Albright College in Reading, Pa. Refund policies vary from school to school, with a full refund usually available for the first week of attendance during a term and no refund available after four to six weeks. Most schools refund the cost of tuition, but not room and board.

For tuition refund insurance, "the core coverage is always accident and sickness,” says Mark Nichols, managing director for Markel Insurance, a provider of tuition insurance.

Other covered events resulting in a refund may include a student or parent's death, a parent's layoff or firing from a job, or a student's dismissal from school for academic or disciplinary reasons.

Tuition refund insurance plans return money only from the current academic term -- not from previous academic years -- and must be renewed each year.

“If your child is a college senior and has to withdraw, you are just going to get a part of that year’s cost refunded. You’re not going to get the previous three years’ cost refunded to you,” Kantrowitz says.

Who might benefit?

Students who depend greatly on financial aid might benefit from tuition refund insurance, says Helen Nunn, director of financial aid for Susquehanna University in Selinsgrove, Pa. But, she adds, "they probably don’t have the money to pay the premium, which is a problem."

For students who have chronic medical conditions, tuition refund insurance also might make sense, Nunn says. Kantrowitz warns, however, that these plans typically exclude pre-existing conditions such as pediatric cancer.

It’s not uncommon for a student to withdraw for medical reasons, particularly mental health issues. “That’s becoming a more and more common problem on campus,” Duffy says.

But while Markel Insurance recently put refunds for mental health withdrawals on par with medical reasons to reflect federal law, most tuition insurance policies cap refunds for mental-health-related withdrawals, usually at 60 percent to 85 percent. Suicide and intentional self-inflicted injuries aren't covered.

Buying peace of mind

insurance tuition refunds

Kantrowitz says most college-age students are healthy enough that this type of insurance may not be warranted.

“The actual likelihood of needing the insurance is a lot less than the psychological need to have the insurance in case the worst happens," Kantrowitz says.

Indeed, the insurance is more for "peace of mind" than anything else, says Nunn, the Susquehanna University official. “For most families, like for most insurance coverage, you probably aren’t going to use it," she says.

In fact, just 4 percent of Susquehanna University’s students bought tuition refund insurance in the 2010-11 academic year, a drop from 12 percent the year before, Nunn says. At most, three Susquehanna students over the course of one academic year have drawn tuition refund insurance benefits, she says.

Lack of participation led Albright College to drop its tuition refund insurance plan, according to Duffy.

'Sometimes things happen'

Susquehanna University is one of about 200 post-secondary schools that offer a tuition refund plan from A.W.G. Dewar, which started offering this coverage in 1930. Markel Insurance underwrites policies marketed by independent providers, such as Niagara National Inc., Educational Insurance Plans, Next Generation Insurance Group and GradGuard (sold to members of College Parents of America).

Nichols and other insurance professionals cite the skyrocketing cost of college tuition as a reason to consider tuition refund insurance. In its seven years in operation, Markel has paid about 500 claims for both private K-12 and post-secondary institutions, at an average of $4,300 per claim, Nichols says.

"You pay for tuition thinking that your child is going to be in school and stay there. But sometimes things happen. And all the things that we would cover are, by and large, out of the parents' or payer’s control,” Nichols says. “I can’t envision anyone -- except for the incredibly wealthy, maybe -- who would think this is a bad idea.”

Susquehanna University's Nunn says that as with any purchase, parents need to understand how tuition reimbursement insurance works, "and whether it appeals to them because it appeals to their peace of mind and personality, or because they feel like there’s some reason why the student might not be able to finish the (school) term."

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