College is very expensive these days -- so expensive that many graduates complete their studies with a pile of student loans. But should you buy college tuition insurance to protect yourself in case your educational plans change? Here, we'll explain how student tuition insurance works and help you decide whether it's right for you.
What is college tuition insurance?
As the name implies, college tuition insurance offers coverage in the event that you (or someone whose education you’re funding) wind up not completing a semester you've already paid for.
Typically, you pay your college tuition prior to the semester it's meant to cover. That means you pay for your fall semester the summer before, and you pay for your spring semester the winter before. By the time each respective semester starts, you're paid up. In fact, often, you can't register for college classes until your tuition for that semester is paid in full. As such, if you drop out of college mid-semester, whether due to illness or another reason, you risk losing the money you forked over.
In many cases, college tuition insurance can protect you from that financial loss. But the coverage you'll get will depend on the specifics of your tuition insurance plan.
How does college tuition insurance work?
College tuition insurance works like many of the insurance plans you may already be familiar with, such as trip insurance. You pay a premium, and in exchange, your insurance provider will reimburse you some percentage of your lost tuition in the event you or your child withdraws mid-semester.
The exact cost and coverage you'll get with tuition insurance varies from plan to plan. But if you’re worrying how to save money on college, purchasing a tuition insurance policy isn’t going to break the bank. Generally speaking, you'll pay 1% of your tuition costs for tuition insurance. For $50,000 of coverage, your cost could be as little as $500.
That said, you're not guaranteed your entire tuition back with tuition insurance. Some policies will reimburse you only a certain percentage of your initial outlay. So you'll need to see what your plan entitles you to.
Also, each tuition insurance plan has its own set of covered reasons that render you eligible for reimbursement. However, most of the time, you'll be eligible to get your money back in these scenarios:
- Illness (including mental health illnesses, sudden illnesses, and chronic illnesses)
- Death of the student
- Death of the student's parent or guardian
In some cases, withdrawals due to academic difficulty are covered as well. But many plans exclude certain mid-semester withdrawal scenarios, such as substance abuse issues. So again, you'll need to check the fine print when comparing insurance options and see which plan provides the best coverage.
Where can I buy college tuition insurance?
Rather than buying student tuition insurance from student loan providers, you can purchase a policy from a third-party insurance company. There are a few companies that offer college tuition insurance, including:
- A.W.G. Dewar
- Education Insurance Plans
- Markel Insurance Company
A Google search should yield some results, at which point you can get quotes and compare your options.
Should I get college tuition insurance?
College tuition insurance could save you a bundle of money in the event you wind up withdrawing from your studies mid-semester. But before you pay for a plan, make sure to figure out what your school's reimbursement policy.
Many colleges actually have a refund policy for situations in which students withdraw, especially for medical reasons. So you may not actually need insurance if your school's policy is more generous.
You should also pay attention to the fine print on refunds if you’ve been saving with a 529 college savings or prepaid tuition plan.
And if you do buy a plan for extra protection when your college already has a decent refund policy, any payout you get from your insurer will be reduced by the refund you get from your school. So keep that in mind, too.
If the college you're attending does not have a reasonable refund policy, and your tuition is expensive, then tuition insurance could be a smart investment. Say you're paying upwards of $20,000 per semester for tuition alone. Spending another $200 or so in insurance could easily make sense. On the other hand, if you're attending community college, where you might pay just $1,500 to $2,000 in tuition per semester, buying insurance may not be necessary.
In many cases, college tuition insurance can offer students and their families some much-needed peace of mind. But before you buy a policy, make sure you really need it. After all, your goal should be to minimize your student loans. It may be counterproductive to tack on another expense, especially if you’re already graduating with debt.