With the average total cost of college tuition, fees, and room and board now running around $41,000 a year at four-year private institutions, you might be tempted to buy tuition refund insurance, which is offered by more than a hundred of the biggest names in higher education for $200 to almost $600 a year, depending on plan details.
The concept is alluring: If your student must withdraw—because of a serious injury, medical, or mental-health problem—you get your money back. “The Tuition Refund Plan will alleviate if not eliminate your financial loss,” says promotional materials from A.W.G. Dewar, a leading administrator of this coverage.
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But those benefits are subject to policy limits, exclusions, and other fine print details. Before you purchase this insurance, ask these questions.
1. What’s covered? Tuition refund insurance typically covers a very specific event, withdrawal from school caused by a serious health issue. “This is a relatively expensive insurance product for a relatively rare event,” said Mark Kantrowitz, publisher of Edvisors.com, which advises parents on how to plan for and pay for college.
But there are lots of other reasons your son or daughter might “stopout”—temporarily withdraw from college. So if you’re looking to protect against difficulty adjusting to college life, dissatisfaction with the chosen school, poor grades, slackerism, suspension, or fear that you’ll lose your job and won’t be able to afford the tuition, this insurance usually won’t help you.
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2. What’s the benefit? The Dewar plans that we’ve seen offer you an option of covering only tuition and fees or, for students living in campus housing, tuition, fees, and room and board. Those living expenses make up about $11,000 of the total annual bill for attending college.
3. What’s the risk? About 15 percent of full-time four-year college freshmen are gone by the time sophomore year rolls around, according to data from the National Student Clearinghouse Research Center. That can make the cost-risk of withdrawal loom large, but those numbers don’t detail why students left.
Health-related withdrawals are only a small subset of all withdrawals. “Every year, thousands of college students are forced to withdraw from classes due to sickness or injury,” according to brochure published by Dewar, which did not return our phone calls. But “thousands” is a drop in the bucket compared to the 12.7 million full-time students enrolled in U.S. colleges.
4. What are the deductibles? The Dewar plans offered by some institutions, such as Rice, Vanderbilt, Georgetown, and Claremont McKenna College, refund 100 percent of eligible costs. But other schools’ plans pay only a percentage of the withdrawal loss. Harvard’s plan pays 90 percent, Amherst’s pays 80 percent, and Hofstra’s pays only 75 percent for injury and medical health withdrawals and a mere 60 percent for mental health withdrawals.
Any shortfalls amount to hefty deductibles of 10 to 40 percent or a couple to several thousand dollars out-of-pocket. “It’s not always a 100 percent benefit," Kantrowitz said. "You may think you’re getting more than you actually are.”
5. The school may also provide refunds. Depending on when you withdraw, the school’s own refund policy may already give you a significant chunk of change. At Rice, for example, if you withdraw during the first month of classes, the university refunds 60 to 100 percent of your tuition, while the insurance pays the 0 to 40 percent shortfall. If you withdraw during the second month, Rice will refund less, 10 to 50 percent, and the insurance pays more. After nine weeks, Rice doesn’t refund any tuition and the insurance pays any eligible loss balance.
Bottom line: Tuition refund insurance is not a knee-jerk “No,” but the devil is in the details. Shop very carefully and make sure you’re getting the protection you want.
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