You have insurance for your car, home, health, and even your pet cat… but what about insuring your investment in a higher education? A recent College Parents of America survey found that locating the finances to fund a child’s college education is a parent’s second-largest concern next to the student’s academics.
The value of a secondary education is a considerable concern since the financial outlook for student-loan debt and the potential for new graduate job opportunities continues to be bleak.
In February 2012, Standard & Poor’s reported that student-loan debt may be the next major U.S. bubble to burst. FinAid.org, an information portal for student financial information, reported that student-loan debt reached $1 trillion in 2010, outpacing credit card debt for the first time in several years. As graduates struggle to repay loans, continued job uncertainty for new graduates has contributed to the mounting number of school loans going into default. In the interim, colleges and universities are seeing declining endowments and decreased state funding.
The Project on Student Debt, a non-profit concerned with finding cost-effective solutions that expand educational opportunity, estimates that the national average for student loan debt in 2010 was about $24,000. What’s even more disconcerting is that only 12 percent to 14 percent of students graduate in four years and 44 percent never graduate at all, says Micheal McKinnon, president of College Planners of America, LTD.
According to a recent survey by UCLA’s Higher Education Research Institute, more college freshmen have decided not to attend their college of choice based on tuition costs. In fact, in order to address the recent loss of enrollment to less expensive schools, some private colleges are offering a financial aid benefit or repayment plan that will cover one to two years of a graduates tuition if they earn an income less than $20,000 to $40,000 a year. While law schools have offered these repayment programs for years, (funded primarily by donations), the current state of the economy combined with a graduates inability to land adequate employment to pay back their education loan debt has reached crisis levels in some states.
Sallie Mae’s 2010 National Study of College Students and Parents conducted by Gallup, also reported that 63 percent of families ruled out colleges based on financial considerations during the application process, compared to 56 percent in 2009. Now imagine what happens if a student cannot finish college and they have thousands of dollars in education loans. A Student Monitor study in 2010 indicated that one out of eight students has reportedly withdrawn from school in the middle of the semester or knows someone who had to withdraw for a medical emergency, or death in the family.
While tuition insurance can provide up to 100 percent reimbursement of covered tuition, it is by no means “dropout insurance” says John Fees, co-founder and CEO of GradGuard, a service of Next Generation Insurance Group, LLC. A diagnosis that is made prior to taking out tuition insurance will not be covered either. Tuition insurance covers students for withdrawals due to sickness, injury, and death of the tuition payer or insured student. There is also 75 percent coverage for withdrawal due to emotional, nervous, or mental disorders. The injury or sickness will need to be certified by the student’s physician as being a condition that prevents him or her from attending school.
“Bad things happen in an unpredictable way, that’s why tuition insurance is so great,” says Fees, co-founder and CEO of GradGuard, “It’s a risk people don’t know they have.”
Student loans that are borrowed by either the student or by the parent are still covered under the plan. Once the claim is approved for payment, the college is credited or the policyholder is paid back directly.
GradGuard and A.W.G. Dewar, Inc. are organizations that offer tuition insurance. Although some colleges do have a refund policy that offers some kind of reimbursement for semester fees due to withdrawals during the first few weeks of the term, the College Tuition Refund Plan would complement the college’s refund policy for the applicable period.
For instance, University of Illinois at Urbana-Champaign has a refund policy that includes certain dates to either acquire a full 100 percent refund or depreciating percentages after the set dates according to the university’s refund policy’s guidelines. In order to see any return for withdrawing from the university, the student must complete the withdrawal procedure within the first couple of months of the semester.
GradGuard offers tuition insurance coverage for up to $50,000 per year. Tuition insurance generally costs one percent to two percent of the cost of tuition coverage the policyholder chooses. Fees reports that it is smart to have some level of insurance due to so many unexpected health risks. These risks are even harder to deal with when tuition costs are only rising. According to College Board’s Trends in College Pricing 2010 report, in-state tuition and fees at public four-year institutions average $7,605 per year in 2010 and 2011, while out-of-state tuition and fees at public four-year colleges and universities average $19,595 per year.
Tuition insurance reimburses tuition costs, room and board, academic fees, and other related expenses. A.W.G. however, only provides coverage through participating colleges. GradGuard’s tuition insurance policies can be purchased any time during the academic year and does not require school-specific underwriting. McKinnon, who has advised families and students in their college financial planning for over 20 years, indicates that he would not have any qualms presenting the option to his clients.
“I would present it to the parents and let them make that decision. I think the odds are very great that the student can’t finish the semester. I would not be averse to it [tuition insurance] at all,” says McKinnon.
Wittenberg University in Springfield, Ohio offers a tuition insurance program to its students. Doug Schantz, the director of office accounts from the university would generally recommend the program to students and adds that all universities should offer it as well. Wittenberg University’s tuition refund plan covers injury and sickness withdrawals at 100 percent and insures students at 60 percent due to mental health withdrawals. For a refund to be rewarded due to a mental health withdrawal, the student must have been diagnosed with a condition found in the American Psychiatric Association’s Diagnostic and Statistical Manual, DSM-IV and hospitalized for two consecutive days. However, according to the exclusions of the university’s policy self-inflicted injury or suicide is not covered. In both withdrawal cases, the university requires a “complete withdrawal” from the college. A complete withdrawal means that the student has given written notice that due to the injury or sickness, they cannot complete the term and will not receive any academic credit. A written statement from the student’s doctor verifying the injury or sickness will be required, as well as the college’s verification.
“I believe that every school should provide some sort of tuition insurance option for their families, says Schantz. It is an extra, added service for the families and there is no additional cost to the University to make it available. It is a no-brainer.”
McKinnon indicated that while the average student loan debt is about $24,000, there is a big misconception since the amount of debt that is calculated only concerns the student and not how much debt the parents are taking on, on behalf of the student. “I highly doubt that the $1 trillion loan debt is calculated by a bunch of $24,000s,” added McKinnon.
With such a large investment being taken on by the student or the parents, tuition insurance seems to be an added safety net that is available for those who want to make sure that investment is protected just in case an emergency strikes.
“Personally, I would be more inclined to get the insurance if a history of illness was known, says Schantz. That being said, college tuition isn’t cheap, so I think it is probably worth the investment for any family that can afford the additional premium associated with the coverage.”
