More than ever, a college degree is a significant financial investment — and one that some might choose to insure.
A college education is now the second-largest expense an individual is likely to handle in a lifetime — right after purchasing a home. Families with students in four-year public colleges shelled out more than $19,500 in 2015-16; at four-year private colleges, it was about $43,900, according to the College Board.
To that end, there are a growing number of tuition insurance policies available to offer some degree of a safety net.
Tuition insurance, also known as tuition refund insurance, covers families in the event that a student must withdraw from school, mainly for medical or psychological reasons, with a few obvious exclusions, namely flunking out or being kicked out for disciplinary reasons (although the extent of coverage varies from plan to plan).
"The college expenses that are borne by parents and students today are extraordinary and there is a way to protect it in case something unexpected comes up," said Joe Mason, the chief marketing officer of Allianz, one such insurance provider.
Increasingly, not all students who start college actually finish. Among students who matriculated at a four-year private nonprofit college in 2007 (the latest data available), just 52.8 percent graduated within four years, according to the National Center for Education Statistics. At public four-year colleges, it was 33.5 percent.
Still, while students "are more likely to leave college for one reason or another, it's relatively rare that it's medically related," said Max Spiegel, chief operating officer of Student Loan Hero, a website that provides free tools to help borrowers manage their debts. More often, they are having social or academic trouble, which would likely not be covered. "You have to read the fine print," Spiegel said.
And, even then, these types of plans typically only cover partial tuition reimbursements or refunds on what the school doesn't already cover. Depending on when a student withdraws in a semester, the college's own refund policy may reimburse a significant amount (specifically if it's within the first month or so of the semester, although it varies by school).
In general, plans can cost as much as 6 percent of the tuition tab and are purchased a semester at a time to cover in-state and out-of-state nonrefundable tuition as well as housing and other fees. As with other types of insurance, the more extensive the coverage, the more expensive the policy.
At Allianz, for example, if a student's annual tuition, fees and room and board were $30,000, the midlevel "preferred" tuition insurance plan would cost about $202.50 per semester.
A few plan options from Allianz
| Essential | Preferred | Advantage |
|---|---|---|
| Best if you want an affordable level of baseline protection. | Best if you want higher levels of coverage at a reasonable rate. | Best if you want maximum peace of mind. |
| Reimburses you up to $2,500 in case of withdrawal as the result of a covered illness or injury. | Reimburses you up to $50,000* in case your student has to withdraw for covered illness or injury. | Reimburses you up to $50,000* in case your student has to withdraw, no matter the reason. |
| Illness/Injury of Student $2,500 | Illness/Injury of Student100% | Illness/Injury of Student 100% |
| Death of Student $2,500 | Death of Student 100% | Death of Student 100% |
| Psychological/Mental Disorder $2,500 | Psychological/Mental Disorder 80% | Psychological/Mental Disorder 100% |
| Any Unforeseen Reason N/A | Any Unforeseen Reason N/A | Any Unforeseen Reason 50% |
| Student Life Assistance Included | Student Life Assistance Included | Student Life Assistance Included |
| Your Cost: $29.95 | 1.35% ** | 6% ** |
Source: Source: Allianz Tuition Insurance
While still relatively new to the market, many schools are starting to offer third-party tuition protection. It can also be purchased by families directly through a provider such as Allianz or A.W.G. Dewar.
Eric Greenberg, president of Greenberg Educational Group, a New York–based consulting firm, advises families to proceed with a hefty amount of skepticism. "This type of insurance is early and there isn't tons of data to demonstrate its utility or lack of utility," Greenberg said.
"The consensus is that it's not really worth it unless your child has a history and there's a greater than not chance that they'll have to leave school," Spiegel said.
Still, "If this is going to give you peace of mind, then go for it," he said.