Should You Buy College Tuition Insurance?

Tuition refund policies make sense only in some situations

College student in dorm Photo: iStock

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 $22,180 a year for a state school and $50,770 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.

The insurance, which costs several hundred 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.

More on Paying for College

But as with any insurance product, the devil is in the details. Most plans cover withdrawal only for a serious health issue, and 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.”

But during the pandemic, the perception of risk has been heightened for many families, MacPhetres says. And there are situations when it might make sense to consider buying it.  

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 many policies exclude pre-existing conditions.

Be aware that college tuition policies have generally excluded pandemic-related illness from coverage in the past. But recently some providers have updated their policies to cover COVID-19 medical conditions. For example, GradGuard now covers coronavirus illness as an accommodation and is updating its policies to reflect the change, says John Fees, GradGuard’s co-founder and managing director.

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, says Jane Klemmer, an independent college consultant.

So if your son or daughter withdraws from school early in the semester, the college will likely 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 four weeks of school can get 20 percent to 100 percent of tuition back, depending on when she leaves school, but nothing after Oct. 8 for the fall semester. 

At Vanderbilt University, the policy is a little more generous. A student can withdraw at any time during the first 10 weeks and get 40 percent 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. But 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.

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