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Tuition Insurance Often Not Worth Cost, Experts Say

THE SAN FRANCISCO CHRONICLE

As if college isn't expensive enough, many schools are pushing parents to buy insurance that will pay their tuition for the remainder of a term if a student is forced to drop out because of a serious accident or medical illness or dies.

Tuition refund or reimbursement policies are sold by private insurance companies, but some schools - primarily high-cost private ones - encourage families to buy them.

The insurance does not pay off if the student leaves for any non-medical reason such as bad grades, illegal-drug or alcohol use, taking part in a riot, homesickness or suicide.

Many policies will pay a reduced amount - such as 60 to 75 percent of the tuition - if the student leaves for certain diagnosed mental conditions. Some provide the same benefit for physical and mental health.

Tuition insurance is generally a waste of money, says Mark Kantrowitz, publisher of Finaid.com. "It's like an extended warranty. They are very profitable to the organization, but not very profitable to you," he says.

Financial catastrophe

The purpose of insurance is to protect against financial catastrophes. "If you are at the school, you can in theory afford that school," Kantrowitz says. So why do you need insurance?

Kantrowitz says schools push this insurance because it benefits the schools.

It ensures they will get their tuition even if the parents renege on their obligation.

It also makes it easier for schools to deny refunds in cases of serious illness if they can say the parents had a chance to buy insurance and declined.

"It allows them to enforce their refund policy and not bend the rules on hardship cases," says Dana Tufts, president of A.W.G. Dewar, which provides school-specific policies to about 180 colleges.

In a letter to students and parents on its own letterhead, Fordham University in New York encourages families to buy such a policy from Dewar.

"Given the substantial financial commitment that students and their families make to pay for a Fordham University education, it is increasingly important to protect your investment," it says.

At Fordham - which costs about $20,000 per semester or $27,000 including room and board - students get back 100 percent of their tuition if they withdraw before the second week of the term. The refund gradually declines to zero if they withdraw anytime after the fifth week.

If a student buys a Dewar policy and the student leaves for medical reasons, the policy will pay Fordham 100 percent of the tuition 60 percent for mental heath withdrawals, minus any refund due the parent.

Fordham will then forward the proceeds to the parent, minus any financial aid the student received or was entitled to.

Parents asked for it

Fordham spokesman Bob Howe says Fordham began offering the insurance because some parents asked for it. "Fordham doesn't get anything" from the sale of policies. "It's an option. We don't push it," he says.

Regardless of insurance, Howe adds that if a student is really sick, Fordham might provide a full refund, but "it's on a case-by-case basis."

The cost of the policy at Fordham is $495 per academic year for students with residence hall charges on their bill or $399 per year without room and board.

Although Dewar provides insurance only through schools, some companies such as Next Generation Insurance Group also provide individual policies to students that can be used at any college.

The company's Grad Guard polices, which cost $239 to $599 a year based on the mamount of tuition coverage, include other benefits such as ID theft protection, extended warranties on certain products, computer repair and emergency medical evacuation. Grad Guard pays claims directly to the parent, not the school.

Sallie Mae recently said it will begin offering Grad Guard policies. Students who take out a private student loan through Sallie Mae will automatically get $5,000 worth of Grad Guard coverage.

Although tuition reimbursement may buy peace of mind, "it does not seem to have a good return on investment," says Doug Heller of Consumer Watchdog. "It doesn't seem to provide sufficient protection for the price they appear to charging."

For more information, go to sfg.ly/qMLEEK.

 

Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.