College is expensive and serious money is at risk if a student gets injured, takes sick, or flunks out. Can our clients protect themselves from any of these risks?
The answer is, maybe.
The onus is on families to put measures in place to minimize potential damages, but they often don’t know the rules. That’s where advisors can help.
Talk to your clients about tuition insurance and their parental rights — and then encourage them to do their homework. If your clients’ grandchildren are college students, encourage them to ask their children if they’ve looked into these topics.
Tuition insurance, commonly referred to as “tuition refund insurance,” provides coverage for students if they must withdraw from school, typically for medical or mental health reasons. Generally, 100% reimbursement is available for illness, injury or death, although coverage for mental illness may be just 80%.
What’s covered and what’s not
Covered expenses can include tuition, room and board, and other campus-related fees. It covers coursework in the classroom and online, and it also covers coursework when a student studies abroad as part of their curriculum.
This coverage may include federal student loans, 529 money, and one-time scholarships (check the policy fine print!). Coverage is typically renewed each quarter or semester and is often provided through the colleges themselves – although coverage can be purchased separately.
Expect to pay between 1% and 2% of the tuition costs for coverage (so $30,000 in tuition would cost $300 to $600 in premiums.). Fees are generally lower (1% of costs) if a school provides its own tuition or partners with a third-party provider, and higher (2%) if purchased directly from a third-party provider.
Students can typically buy tuition insurance up until their first day of class. Schools might even allow coverage to be purchased through the last day of the add-drop period for classes each semester.
Coverage is generally easy to secure — an online application process that doesn’t require a medical exam — and should always be purchased prior to the start of the classes (before each quarter or semester).
Flunking out is generally not covered. In fact, most colleges have a strict no refund policy for lack of performance in the classroom that’s not due to illness or injury.
Tuition insurance policies are pretty straightforward. What’s trickier for parents is staying “in the know” regarding their college students. Many are ill-prepared for the privacy obstacles that can stand in their way even if they’re paying for school.
A new world
When a student turns 18 years old, or enters a postsecondary institution at any age, the rights their parents had under the federal Family Educational Rights and Privacy Act (Ferpa) transfer to the child (the “eligible student”).
That can blindside many parents who were used to having the rights to access their children’s school records, amend those records and control the disclosure of personally identifiable information contained in those records.
Just about all rights transfer from parents to students upon enrollment in college, including the student’s grades, but there are some exceptions that you should also make your clients aware of.
Financial aid exception
For example, Ferpa permits schools to disclose to parents personally identifiable information from education records, without consent from the child, when the disclosure is connected with financial aid for which the student has applied or received. This is the case when information is necessary to determine eligibility for aid, the amount of aid, the conditions for aid, and/or to enforce the terms and conditions of aid.
Ferpa also permits a school to disclose personally identifiable information from education records without consent when the disclosure is to the parents of a “dependent student.” This term is defined in Section 152 of the Internal Revenue Code.
Generally, if either parent has claimed the student as a dependent on the parent’s most recent year’s income tax statement, the school may non-consensually disclose the eligible student’s education records to both parents under this exception.
Postsecondary institutions may also disclose personally identifiable information from education records to the eligible student’s parents and other appropriate parties, without the student’s consent, in the event of a health or safety emergency.
Under this Ferpa provision, colleges and universities may notify parents when there is a health or safety emergency involving their son or daughter, even if the parents do not claim the student as a dependent.
Ferpa also permits schools to disclose personally identifiable information from education records without consent when it relates to the student’s violation of any federal, state or local law.
A school may also disclose information when students under age 21 have violated its policies regarding the use or possession of alcohol or a controlled substance. However, once students turn 21, colleges view them as adults and deal with them directly on violations pertaining to the institution’s drug and alcohol policies.
The harsh reality
While these exceptions can make it easier for parents to be in the know under some circumstances, schools are not obligated to keep them informed about what’s happening with their student. If we cut through all the legal jargon, parents will not be informed about their child’s classroom performance or registration status unless the student signs off on a release form that allows for that to happen.
In other words, students can flunk out or drop out of school while their parent think their hard-earned tuition dollars are helping them prepare for their degrees. And they may be unknowingly funding or subsidizing their child’s off-campus food and housing although the student is no longer even going to campus.
Meanwhile, colleges are happy to continue to take parents’ money for everything, even if their kids are nowhere in sight.
Not just for freshmen
How can we help the parents we serve?
First, we can help them determine if it makes sense for them to select the tuition insurance being offered by the college or to purchase it directly from a carrier specializing in that line of coverage. Tuition insurance is especially important for families whose children are prone to physical illness or injury or they have a history of anxiety or other mental health challenges.
Encourage clients to look at a college’s refund and medical withdrawal policy. If that’s not sufficient, they should then look closely at the terms of the school’s tuition insurance policy or other policies they may be considering; they can vary greatly.
Also point out that some colleges let students purchase insurance as part of the tuition payment process or even include tuition insurance as part of the cost of attendance.
Second, we can help clients circumvent all the legalize by educating them on Ferpa and encouraging them to make sure their student signs off every year on a Ferpa release form. Parents can insist their students sign the release as a condition of receiving their financial support for college; most kids won’t object with those stakes.
Don’t forget HIPAA and powers of attorney
In addition, we should encourage clients to ask their children over 18 to also sign a HIPAA release form (so they can have access to their children’s medical records), a medical power of attorney (so they can make decisions should their child become incapacitated), and a durable power of attorney (so they can help their children handle their financial affairs).
Most kids who head off to college do just fine, and we don’t want to forget to encourage and congratulate parents for reaching this milestone. But at the same time, it’s important play it safe. No family wants to have to figure out how to protect their children and/or their assets in a time of crisis. By then, it may be too late.
Beth V. Walker is a wealth advisor with Carson Wealth Management and founder of Center for College Solutions, which is based in Colorado Springs, Colo. She is also a member of the SFC Consortium, a group of professionals which helps match families with colleges. She can be reached at firstname.lastname@example.org or 719-522-2278.