Should you buy tuition refund insurance?

Suppose the student attending a private school or college that you're footing the bill for gets ill during the school year and is forced to withdraw. What about the tuition you've already paid? Can you get it back?

Often the answer is no, which, as you might imagine, can result in inconsiderable ill will or even lawsuits. To head off this exposure, some schools include the cost of tuition refund insurance in their fees. This assures the school that it can keep the money while appeasing the sick student's parents. The question is, does the insurance cost reflect the real probability of this occurring, or is it an overly expensive niche product?

The insurance comes in four flavors; compulsory, in which all students are covered and all students pay the premium as part of their fees; mandatory, in which those who choose a payment option other than full-year up-front are required to buy it; opt-out, where the insurance is included in the fee but can be removed on request; and voluntary.

It's easy to find examples of each. The mandatory type is used by The Waterford School, for example, which does not grant refunds, period, and parents on a two-payment or monthly payment plan must take the coverage, equaling 1.1% of the tuition. Richmond University in London makes this insurance compulsory as part of the insurance package covering full-time students.

Sarah Lawrence College uses the opt-out type, charging a $260 fee for tuition refund insurance that is included in the yearly fee, but parents can choose to waive it. USC offers voluntary coverage as a add-on at the time of registration.

If you or your child is enrolling in a school, it certainly behooves you to ask if tuition refund insurance is included in the fees. If you feel comfortable going without it, then ask for it to be removed.

I asked my local insurance agent if there was any other product that might serve the same purpose as tuition refund insurance; he tells me there isn't. With yearly tuition at many small colleges hitting $30-50,000 a year, even one semester's worth adds up to a lot of money. At Sarah Lawrence, for example, tuition and fees currently run $41,968 per year. The $260 insurance fee represents only .6%. If I were a parent, this is a fee I'd likely pay so that in the event my child becomes ill, there will still be tuition money when they recover.

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