Private School Bonds

Private school bonds are intended to provide protection against monetary loss resulting from a private school not delivering the educational services promised to students in exchange for the tuition and fees paid in advance. Learn more about the various types of private school bonds below, or fill out our convenient online application to get started today.

Single Source Insurance is licensed to issue a wide range of surety bonds nationwide.

The private schools in question are, for the most part, non-public postsecondary schools that provide career or vocational education. Although some are degree-granting, most offer some sort of certification rather than a degree.

The primary risk to students (or their parents or sponsors) who have prepaid tuition and fees for a particular course of instruction is that the school conceivably could cease operating mid-term, without issuing refunds. Sometimes a school that is about to close will “teach out” the remainder of the term before shutting down, but if students are left high and dry without the ability to complete the term, the private school bond provides a way to compensate them.

Who Needs a Private School Bond?

If you plan to open a private school in one of the 46 states that require bonding of private schools, including the District of Columbia, you will need to purchase a private school surety bond. The following states make the purchase of a private school bond a mandatory step in the licensing or registration process, though the bond names vary by state:

Oregon

Pennsylvania

Rhode Island

South Carolina

Tennessee

Utah

Virginia

Washington

West Virginia

Wisconsin

Wyoming

The government entity requiring a private school bond establishes the required bond amount, which most often is based on the prepaid tuition collected by the school during the prior school year. In some states it is a flat fee that’s the same for all private schools subject to bonding.

It’s also common for private school owners operating in states where bonding is not mandatory to voluntarily purchase a private school bond in an amount of their choosing. Being bonded builds public confidence in an institution, which makes a private school bond a good marketing tool. They also promote good governance of private educational institutions because they obligate school owners to live up to the terms of the student contract. Poor management or unlawful or unethical conduct carries the risk of having to pay monetary damages.

How Do Private School Bonds Work?

Private schools operate under the principle of “fee for services.” Not delivering the services for which tuition and fees have been prepaid can result in claims being filed against the bond. It’s essentially a matter of contract law, with the owner of a bonded private school bound by the terms of the student contract and the terms of the surety bond agreement.

A private school surety bond is a legally binding contract among three parties known in surety bond lingo as the obligee, the principal, and the surety. The obligee, the party requiring the bond, is the state authority that issues licenses or permits to private schools and governs their activities. The principal, the party purchasing the bond and legally obligated to pay valid claims against it, is the private school owner. The bond’s guarantor is the surety.

The terms of a private school bond require the principal to operate in compliance with applicable state laws and regulations governing private schools, which include delivering all services detailed in the mandatory student contract. It also legally obligates the principal to pay valid claims filed by parties financially injured by the principal’s noncompliance.

The surety conducts an impartial investigation of every claim received, to determine its validity, and may try to negotiate a settlement. If a settlement is not reached, the surety, having guaranteed that valid claims will be paid, typically goes ahead and pays the claim initially. In doing so, the surety is drawing on a line of credit established for the principal at the time the bond was purchased. The principal must repay the debt created by the surety paying the claim on the principal’s behalf. The surety has no legal responsibility for claims and can sue the principal to recover the funds, if necessary.

How Much Do Private School Bonds Cost?

The annual premium for a private school bond depends on the required bond amount established by the obligee and the premium rate set by the surety, which in turn depends largely on the principal’s personal credit score. The assumption is that a creditworthy principal will repay the surety as required. Because the risk to the surety is low, the premium rate will also be low.

A principal with a lower credit score poses a greater risk to the surety, and the higher risk level demands a higher premium rate. The average well-qualified principal will pay a premium rate inv the range of one to four percent.