You’re shopping for new jeans, and the sales associate hands you a pair from the rack. “You should get these,” she says. “OK!” you reply, and head straight to the register without trying them on.
That’s not how it works. And that’s not how shopping for tuition insurance should work, either. If you or your child is enrolling in a private college this fall, you’ve probably received a letter offering school-sanctioned tuition refund insurance through a company like A.W.G. Dewar. The school may call it by a variety of names, such as tuition insurance or an elective tuition refund plan. But this plan may not be the best fit for you.
Before you sign up, do your homework so you understand the potential limitations of your college’s tuition refund plan. Let’s take a closer look at how these plans work and what they offer.
Do you really need tuition insurance?
It’s much more common than you think to drop out of college. According to the National Student Clearinghouse Research Center, just 55 percent of first-time undergraduates who began college in the fall of 2008 had finished their degree by 2014.1 Of those students who do graduate, many “stop out” — withdraw temporarily for a semester or more.
What happens to the tuition they’ve already paid? Without tuition insurance, a student may get just a small refund or none at all. Most colleges offer a schedule of prorated tuition refunds, so a student may receive a full refund if he or she withdraws before classes begin, but only 25 percent after the second or third week of classes.
Tuition insurance is the best way to protect your investment in higher education. With tuition insurance, some or all nonrefundable college costs will be reimbursed if a student withdraws for an unforeseen covered reason, such as illness or injury. But it’s not wise to sign up for tuition refund insurance until you’ve read all the fine print. Here’s why.
The limitations of your college’s tuition refund plan
The tuition insurance plans offered through private colleges have two major limitations.
- Covered reasons are limited. The tuition refund plan offered through your college typically covers only withdrawals caused by a serious illness, injury or mental health condition. “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,” Consumer Reports notes.
- The amount of reimbursement varies by school. If you attend Stanford or Duke University, for instance, Dewar tuition insurance covers only 75 percent of nonrefunded tuition and fees should you withdraw. If you attend Columbia or Cornell University, you get 90 percent. At Hofstra University, coverage is just 60 percent if a student withdraws for mental health reasons.2
Allianz Global Assistance tuition insurance vs. your college’s tuition refund plan
When you’re shopping for tuition insurance, you should be able to choose how much coverage you want. That’s why you should consider purchasing tuition insurance independently of your college’s plan.
Tuition insurance from Allianz Global Assistance offers three levels of affordable and robust coverage. For budget-conscious parents and students, the Essential plan offers up to a $2,500 payout for withdrawal due to a student’s psychological condition, covered serious illness, injury or death. If you want more protection, the Preferred plan returns up to 100 percent of tuition and other covered college costs if a student suffers serious covered illness, injury or death, and up to 80 percent if he or she withdraws because of a psychological condition.
What if some other crisis occurs, such as a death in the family or a financial setback? The Advantage plan covers all the aforementioned scenarios up to 100 percent, and it also covers withdrawals due to any unforeseen reason up to 50 percent. All three tuition insurance plans can cover existing medical conditions.
In short, don’t take the first tuition insurance plan you’re offered. “Shop very carefully and make sure you’re getting the protection you want,” as Consumer Reports advises.3