You insure your house and auto without thinking twice, but have you considered buying insurance for college tuition?
Considering the average annual cost for tuition, room and board at U.S. colleges was $24,623 for the 2018-19 school year, a four-year degree will likely cost more than your car (and maybe your house).
But is tuition insurance worth the cost — and what does it cover (particularly in light of the coronavirus)? Check out our cheat sheet for what you need to know about tuition insurance, especially this year.
What is Tuition Insurance?
In general, tuition insurance is a policy you can buy that will refund your college costs in case you need to withdraw due to an unexpected medical event.
Tuition insurance differs from a refund from your college. Learning institutions typically offer complete or partial tuition refunds on a very limited basis, based on their own internal policies.
Finding out the college refund policy should be your starting point if you’re considering buying insurance, according to John Fees, co-founder of GradGuard, which provides tuition and renters insurance programs to college students.
Something tuition insurance doesn’t cover? If you fail classes, stop attending school or drop out. If you do quit school, here’s how to minimize your student loan debt.
“Ask your college or university for its refund policy in writing,” he wrote in an email. “Most schools only provide a prorated refund for tuition through the fifth week of classes, and virtually no schools provide refunds for academic fees, room and board, or books.”
Tuition insurance, in comparison, typically covers an entire semester. Policies are usually offered by private companies through colleges and universities; as a result, coverage, prices and exceptions can vary.
We’ll break down what to look for if you’re considering tuition insurance — and what to avoid.
What Does Tuition Insurance Cover?
Similar to other types of insurance, you can buy different levels of tuition insurance coverage.
“In general, [insurance] costs about 1% of the total tuition,” said Jodi Rosenshein Atkin, an Independent Educational Consultant. “The amount of coverage you buy is flexible — just as you have a deductible on your car insurance, you can have lesser coverage on the tuition.”
GradGuard’s tuition insurance, for instance, starts at a little less than $40 per term for $2,500 of coverage, but Fees noted that the majority of schools offer $10,000 in coverage for just over $100 per term.
Depending on the level of coverage, you could qualify to receive refunds for academic fees, deposits, housing and tuition. Read the policy contract carefully before you sign so you know what’s included.
When Does Tuition Insurance Kick In?
If tuition insurance coverage begins after a qualifying unexpected event, what’s considered an “unexpected event”?
Again, that depends on the policy, but in the broadest terms, an “event” is an injury, death or illness (think mononucleosis, not a head cold).
In fact, “illness” can cover a gamut of medical maladies — if you have a pre-existing medical condition, you’ll want to make sure it’s covered by your policy.
Tuition insurance only applies to a student’s medical event — not because you or your parent lost income due to the pandemic.
“If a student is in treatment for a chronic illness, it is prudent to get written confirmation from your medical provider before the start of school,” wrote Fees, who noted that pre-existing medical conditions may be covered if the student can verify that they were initially well enough to complete the semester.
Medical reasons could also encompass psychological issues, including mental illness and substance abuse. Mental health coverage could become particularly important this school year, given the increased tension due to the pandemic, according to Rosenshein Atkin.
“If your kid is going off to school and has a history of depression/anxiety that is well managed at home… but they’re going to a stress-inducing environment, then maybe you want to cover your investment,” she said.
And that brings us to the coronavirus.
Special Considerations Due to the Pandemic
All those tuition insurance policyholders must have been patting themselves on the back last spring after college campuses closed and they got their money back, right?
“Tuition insurance provides coverage for the financial loss that occurs as a result of a complete withdrawal, but does not provide a refund due to a change in how classes are delivered,” Fees wrote. “So last spring’s move to online teaching did not create a financial loss that would be covered by tuition insurance.”
If you’re considering switching to a college closer to home but already paid for tuition insurance, call your insurance provider — some will let you transfer the plan if classes haven’t started yet.
He noted that some insurance providers may pay claims if the student withdraws from school due to becoming ill with COVID-19, but claims due to fear of attending school are generally not covered.
Again, it pays to read the fine print, Rosenshein Atkin advised.
“There are clauses in some of these contracts that do not cover pandemics and epidemics,” she said, noting that she’s working with parents who signed agreements that covered tuition but not room and board if the school closes due to the pandemic this year.
With the average cost of a dorm room topping $6,500 in the 2018-19 school year, that kind of exclusion from a policy can have a serious financial impact. You’d not only lose the deposit on the dorm, but then have to come up with the money for a place to live for the rest of the year.
How Does Tuition Insurance Work If I Have Financial Aid or a 529 Account?
Regardless of where the money comes from — cash, student loans, a 529 plan — tuition insurance provides coverage according to the amount purchased for the policy, according to Fees.
“The tuition insurance payment is sent to the insured and not to the student loan company,” he wrote.
You may qualify for at least a partial refund of a scholarship, but it could cost you next year — many renewable scholarships base eligibility on the previous semester’s enrollment.
But if you have a loan that’s already accumulating interest — anything besides a federally subsidized loan — you’ll already owe interest in addition to the balance. That interest will continue to accrue and capitalize if you don’t return to school this year.
So if you must withdraw from school, contact your loan servicer as soon as possible to find out how you can use your insurance payment to pay off your loans.
If the refunded money came from a 529 savings plan, you must redeposit the funds into any 529 plans in your name within 60 days after the refund was issued. Otherwise, the IRS considers the distribution a non-qualified withdrawal and you’ll get hit with a tax bill next year.
Is Tuition Insurance Right for You?
Regardless of the price tag for your particular college, the decision to buy insurance should be based on your own finances.
That means figuring out if you can afford to budget for additional time in college to complete your degree, Fees advised.
“If you can’t afford the cost of an extra semester, it is smart to consider tuition insurance,” he said.
Making your decision about whether to invest in insurance should be a personal one, based on your own risk tolerance, Rosenshein Atkin suggested. And that tolerance may be different this year.
“My advice to families is to know your child, to have a sense of what your risk factors are,” she said, adding that so long as the policy includes epidemic coverage and you can afford the premium, “for peace of mind, it’s probably not a bad investment this year.”
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.