Tuition insurance provides refund if college student doesn't stay in school

Marcus Pickett

College is expensive -- and if a student leaves school in the middle of a semester, all the tuition paid for that semester would be a lost investment. There would be no class credits or degree to show for the money paid. Tuition reimbursement insurance would refund that money if the student leaves school for a reason covered under the policy.

Tuition insurance may seem like an unnecessary expense. College students usually are young and healthy. But a serious, unexpected illness may force a student to involuntary withdrawal from his or her studies temporarily or permanently.

What does tuition insurance cover -- and not cover?

Tuition insurance often is offered by colleges and universities, as well as by private companies. Your coverage will depend on your policy.

GradGaurd, an insurance product offered by Next Generation Insurance Group, for example, will provide a refund if the student withdraws from school because of a physical illness or a mental or nervous disorder. Coverage also kicks in if the student dies or if the tuition payer dies. Included in the reimbursement are costs related to tuition, registration fees, room and board, books and course materials.

Other tuition refund policies pay out if the tuition payer loses his or her job, or if the student is suspended, according to financial aid information site FinAid.org. Some provide full coverage, while others reimburse only a certain percentage of the tuition paid.

As with any insurance policy, it's important to understand the policy's terms -- especially its exclusions. Some common ones include:

• Voluntary withdrawal. If a student drops out -- or is failed for not attending classes -- there will be no refunds under GradGuard coverage. GradGuard also excludes early graduation, withdrawals prompted by fear of a contagious disease, entry into the armed forces or emergency situations that force the school to close. It does, however, cover evacuations caused by terrorism.
• Preexisting conditions. GradGuard does not exclude all pre-existing conditions. If, for example, the student had a serious illness in the past but now has a clean bill of health, that student still could obtain coverage. However, if the insurer discovers that a student was sick (and knew it) at the time he or she bought the policy, withdrawals blamed on that condition would not be covered.

Other policies may have a waiting period of six months to a year, during which they won't cover a pre-existing or chronic condition, according to FinAid.org.

• Suicide. Many plans exclude intentional injuries and suicide, according to FinAid.org. Withdrawals caused by substance abuse generally are not covered as well.

The cost of tuition insurance

Tuition insurance costs vary considerably depending on the policy and coverage amounts, and even the school's claims history. FinAid.org reports that it generally costs between 1 and 5 percent of the coverage amount. This could range from about $100 to $1,000 a year. The University of California at Merced provides optional tuition insurance for its students that ranges from $239 a year for $10,000 worth of coverage to $599 a year for $50,000 in coverage.

Is tuition insurance worth it?

Some schools have refund policies that would negate the need for insurance. But some are more generous than others, according to FinAid.org. Some schools limit claims to the first 30 days of a school year. And some universities simply may offer tuition discounts for future makeup classes instead of a refund.

Things can get complicated when it comes to financial aid. Federal regulations require students to "earn" their financial aid by completing at least 60 percent of the enrollment period, according to FinAid.org. Otherwise, the financial aid must be repaid. In other words, students who leave school might end up owing the school money -- a burden that tuition insurance would help alleviate.

Because most college students are healthy, tuition insurance often is not a worthwhile investment, FinAid.org says. Life insurance and disability insurance often are better options if the student or tuition payer dies or becomes disabled. Yet, according to FinAid.org, life insurance payouts might make a student less eligible for financial aid -- and tuition insurance can bring extra peace of mind if the student has a history of illness.