What is Tuition Refund Insurance and is it Worth It

By: Matt Brock, CFP^®

TUITION REFUND INSURANCE

Paying for education can be one of the largest expenses facing American families. As we have seen in the last two decades, college tuition has been steadily climbing higher. The increase in annual tuition rates from 2006 to 2025 can be seen below:

• Private: $24,253 to $51,316
• Out-of-State: $15,568 to $30,844
• In-State: $6,189 to $12,790

Keep in mind this does not include room and board, which can amount to an additional ~$13k/year. Once the contract is signed, you are potentially on the hook for the entire year of expenses, even if the student involuntarily withdrawals. A college students account that is not paid in full by the due date is subject to late fees and other charges. With such a hefty price tag, you are left with the tough decision of whether to purchase tuition insurance to protect your investment.

WHAT IS TUITION INSURANCE AND WHAT DOES IT COVER

Similar to how we insure our home and auto, you can also insure education to protect against the unexpected. Tuition insurance, also referred to as a tuition refund plan, reimburses certain education related expenses if a student is forced to withdraw. It’s typically geared towards higher education but some insurance programs cover K-12 as well. Generally, one of the following conditions must be met to satisfy a reimbursement claim:

• Death in the family
• Chronic injury or illness
• Serious injury, disability or illness
• Mental health condition (i.e. anxiety, severe stress or depression)

Most insurance plans do not provide coverage if the student withdraws from school voluntarily, feels homesick or gets expelled. While there are a few carriers that do, they typically only reimburse up to 50% and charge a higher premium. While having health insurance can be a must, it does not provide any benefits under these circumstances. The amount reimbursed is dictated by the type of policy and reason for withdrawal. Most plans pay out 75% to 100% of the amount lost after withdrawal. The outlay for tuition insurance is minimal as the fee averages ~1% of total annual tuition, depending on the various bells and whistles of the policy.

How to Get Tuition Insurance

Tuition insurance is generally purchased in one of the following methods:

• Directly from an Insurance Company (A list can be obtained here)
• Directly from the educational Institution

Companies offer various tuition insurance products which makes it important to read the fine print to understand what the insurance actually covers and up to what percent. For example, some plans only cover tuition, while others include room (on-campus) and board. It’s also important to note that many providers exclude certain pre-existing medical conditions and off-campus living expenses.

Who Should Get Tuition Insurance

The question of who should purchase this insurance is not always cut and dry. There are certain situations which make it a more attractive option:

• Student has prior medical history
• Attending an expensive college
• Multiple kids attending college at or near the same time

It is worth noting that most colleges and universities offer some level of refund if a student withdraws for any reason within the first five weeks. This refund policy is similar to federal regulations for the return of financial aid upon a student’s withdrawal. Tuition insurance generally covers the current semester and not the entire calendar year.

If you have multiple kids attending college at or near the same time, this might be a wise investment as the costs can quickly add up. Also, if you are cosigning on student loans for your child, obtaining tuition insurance is a good idea as it ensures you’re protected if your child is forced to withdraw as you will be responsible for the loan. When it comes time to file a claim, a signed letter from a licensed health professional or doctor verifying the student’s condition is required along with a few additional forms.

Just like with other insurance, tuition coverage can potentially help you feel more secure, something that can be hard to put a price tag on. If it makes you sleep better at night, then it’s probably worth owning given the fairly low premium. In the end, the decision of whether to purchase it should be based on your family’s financial situation and child's medical history.

Wondering if this strategy is right for your family? Connect with an EP Wealth financial advisor to discuss your goals and explore your options.

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