Should You Buy Tuition Insurance?

by Shannon Vasconcelos, former financial aid officer at Tufts University Should you buy tuition insurance? This is one of many questions that will be posed in this article that I will not answer for you. The decision to purchase or not purchase tuition insurance is one that each college student’s family must make for themselves, after research and reflection. This article will, however, educate you as to the data points you should think about when considering whether or not tuition insurance may be a valuable purchase for your family. Let’s start the discussion with a question that I will answer for you: What is tuition insurance? Tuition insurance is protection you can obtain—for a price—for your college investment. Once secured, tuition insurance will reimburse you for out-of-pocket payments made to a college for a payment period if the student is unable to complete that period for a covered reason. You can’t finish your classes, you get your money back! Straight-forward enough, but the devil, as they say, is in the detail, so let’s break that down. First of all, policies typically reimburse you for payments made to the college for charges such as tuition and fees, and, if the student is living on campus, perhaps room and board (verify with the policy). It pays you back for your out-of-pocket payments, so, if most of your tuition is covered by financial aid, tuition insurance may be less valuable to you. Next, the policy covers costs incurred for the payment period only, which is typically a semester. When you think about your college investment, you often think about four years’ worth of tuition. If the student is unable to complete their education, a tuition insurance policy may reimburse you your payments for the semester, but not for all four years. A semester’s charges are nothing to sneeze at, but make sure you put it in perspective. And, finally, your tuition insurance policy only kicks in if the student withdraws for a covered reason. So… What withdrawals does tuition insurance cover? Tuition insurance typically covers a semester left unfinished due to death (of the student or sometimes the tuition payer) or illness, injury, or medical condition. Again, simple enough, but most policies have a long list of exclusions, excluding losses caused by pre-existing conditions, competitive sports, civil unrest, self-harm, epidemics, cessation of operations by the school, and more. Mental health conditions may be covered, sometimes at a lower rate, and only when the student is diagnosed and advised to withdraw by a medical professional. In short, read the fine print. And note that some of the most common reasons students withdraw from college are not medical, but are social, emotional, academic, disciplinary, or financial—none of which are covered by a typical tuition insurance policy. Understanding these limitations, you may be wondering… How much does tuition insurance cost? Policies vary by provider, by coverage, and by college, but I’ve seen policies ranging from 0.6% to a full 2% of tuition. What these percentages equate to in dollars obviously depends upon the cost of the college in question. 0.6% of a $5,000 tuition charge is $30 and may feel very affordable to a family, whereas 2% of $40,000 tuition, or $800, may feel less so. While weighing the worth of tuition insurance to your family, another question to get the answer to is: What is your college’s tuition refund policy? Every college publishes a tuition refund policy, detailing how much money a student will get back should they withdraw at various points in the payment period. Generally, the earlier you withdraw, the more money you get back, but there is tremendous variation from school to school. At Harvard University, for example, you can withdraw within the first week of classes and still get 100% of your money back. At Boston University, however—just across the Charles River from Harvard—you lose 20% of your tuition on day 1 of classes! On the other side of the country, at a California State University, you accrue approximately 1% of tuition charges per day until a couple of months into the semester, when you’ve “earned” the full tuition charges and are no longer eligible for any refund. How stingy or generous your college’s tuition refund policy is may inform your decision of whether to buy tuition insurance. In general, if a student withdraws early in the semester, they’ll get a good portion of their tuition back. If a student becomes ill late in the semester, they may not be eligible for any tuition refund, but they can often take a temporary “incomplete” for the semester, finishing up final assignments and receiving credit once they recover. Tuition insurance tends to be most useful for mid-semester withdrawals, when refunds are minimal but coursework still plentiful. What else should you ask? The previously discussed questions are those you ask of someone else—what does this tuition insurance policy cover and what does it exclude? How much does it cost? What refund would you get anyway from the college without insurance? The answers to these questions will inform your decision about whether or not to purchase tuition insurance, but they will not make the decision for you. In the end, you need to ask yourself some questions as well:

• How does tuition insurance fit into my college budget?
• How catastrophic would the loss of a semester’s tuition be to my family?
• How healthy is my student?
• How likely are they to withdraw from college for a covered reason?
• How risk-tolerant or risk-averse am I?

In the end, it is these questions that will drive your purchase decision. Should you buy tuition insurance? There is no right answer to that question. There’s only the right answer for you and your family.