🎓Should you buy college tuition insurance? Depends

Consumer Reports says tuition refund policies make sense only in some situations

Consumer Reports explains how parents can save on college expenses.

Paying for college might be one of the biggest financial commitments you make. Many families grapple with whether they should buy insurance to protect their investment, a decision that has grown more complicated during the COVID-19 pandemic.

Considering that the average cost of tuition, fees, and room and board is about $27,330 per year for a state school and $55,800 at a private university, you might be tempted. A tuition refund insurance policy will refund the payments you made for tuition, fees, and on-campus housing if your child withdraws from school.

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The insurance, which costs several hundred of dollars per year depending on the plan, is offered by hundreds of schools, mainly through third-party sellers such as A.W.G. Dewar and GradGuard. The coverage must be purchased before the first day of the academic term.

But as with any insurance product, the devil is in the details. Most plans cover withdrawal only for a serious health issue, such as a serious injury or illness, chronic illness, or mental health conditions. Some carriers may exclude illness due to a pandemic.

If a student drops out for academic reasons, is expelled, or just isn’t happy at school, the insurance won’t apply.

“For most families, the insurance is unnecessary,” says Stacey MacPhetres, senior director of college finance for Bright Horizons College Coach and formerly a financial aid officer at Emerson College. “Most college students are young and healthy, so they probably won’t need to withdraw for medical reasons.”

In 2021 about 113,000 students took a leave of absence for any reason, which included medical leaves for mental health issues, according to the nonprofit National Student Clearinghouse, which provides educational data and research. Those withdrawals accounted for less than 1 percent of the 17 million students who were enrolled in colleges in fall 2021.

Still, the pandemic has heightened the sense of risk for many families. As a recent survey by College Pulse and GradGuard found, almost 4 out of 10 students say they have considered withdrawing from school for reasons such as financial issues, academic challenges, and health issues, illness, or injury.

Given those concerns, there are situations when it might make sense to consider buying this coverage.

Understanding How College Tuition Insurance Works

To decide, the first thing to do is to read the fine print on the policy to figure out whether it might work for your son or daughter. Note that to collect on the insurance, you’ll need to document all claimed expenses and have a doctor’s recommendation that your kid withdraw from school. Many policies cover mental health issues, but check the insurer’s rules for the necessary documentation.

Then find out how much the insurance covers. Some plans reimburse 100 percent of covered costs; others reimburse only 75 to 90 percent of the money you lose by withdrawing. Tuition insurance might seem like a good idea if your child has chronic health issues, but some policies exclude preexisting conditions.

In the past, college tuition policies generally excluded pandemic-related illness from coverage. But recently some providers, including GradGuard, now cover COVID-19 medical conditions.

Before you make the purchase, it’s crucial to check the details of the policy to make sure the risks you’re seeking to insure will be covered.

You May Already Have Coverage

Keep in mind that most schools have a refund policy that reimburses tuition on a declining scale depending on the date of withdrawal, but generally not beyond the first month of the semester.

But check the details of the refund policy, and ask whether there are exceptions, such as medical or mental health issues, or other emergencies, MacPhetres says.

In most cases, if your son or daughter withdraws from school early in the semester, the college is likely to refund a big portion of the tuition and housing costs you paid. If you do have tuition insurance, the policy will cover whatever the school doesn’t pay out if the child has a documented medical reason for the withdrawal.

For example, at Boston University, a student who withdraws in the first two weeks of school can get 20 to 100 percent of tuition back, depending on when they leave school, but nothing after Oct. 11 for the fall semester.

At Vanderbilt University, the policy is a little more generous. A student can withdraw at any time during the first nine weeks and get 40 to 100 percent back.

In the end, the decision is based on your financial and medical situation as well as the rules of the policy offered by the school’s plan. If you’re paying full freight for tuition, a few hundred dollars more for the insurance might not make much of a difference to you. If losing a percentage of the tuition paid will have a serious financial impact on your family, then tuition insurance might be well worth it, MacPhetres says.