July 29--Some students preparing to enroll this fall at Carnegie Mellon University have taken steps to protect their substantial investment in higher education by purchasing a special kind of insurance policy, one that may be unfamiliar even to veterans of the insurance industry.

For more than seven decades, CMU students have had access to an optional college insurance program known as the Tuition Refund Plan, which promises to reimburse students and their families for up to 100 percent of their semester fees if they need to withdraw because of a physical illness or accident.

The Hanover, Md.-based American College Health Association surveyed college students in 2011 and found 16 percent reported their academic performance was impacted by a cold, flu or illness in the past 12 months; 11.9 percent had depression; and about 2 percent reported having mononucleosis.

While many students can and do overcome these unexpected medical events, the financial loss can be devastating if they can't complete a semester.

Most colleges and universities will only give a partial refund if a student needs to withdraw after a semester gets under way. Typically up to 80 percent is refunded if a student leaves in the first week. The chances of getting any refund after the fourth or fifth week of classes are usually slim to none.

Paying for college is one of the biggest investments most families will make, but only a small percentage take steps to protect that investment the way they would seek insurance for their home or automobiles -- often because they don't know it is possible.

For many decades, the polices were offered by only one company -- A.W.G. Dewar -- and were limited to a group of about 1,300 mostly private schools and about 150 elite colleges and universities, including CMU.

Today, new players in the tuition insurance business -- TuitionGuardian and GradGuard -- have expanded the market to allow students at all colleges, including state institutions like the University of Pittsburgh and Penn State University, the opportunity to insure against illnesses and accidents that would force them to withdraw from classes.

"We provide service to all schools, not just the elite schools," said John Fees, co-founder of the Phoenix-based Next Generation Insurance Group, which offers GradGuard. "It used to be only private schools were really expensive. But today any school is a large investment for the average family."

The cost of the policies offered through third-party insurers runs anywhere from 1 percent to 3 percent of the cost of attending the institution. With the average cost of attending private college at $35,492 and the average cost of attending a public in-state college at $17,131, according to the College Board, premiums would range between $200 to $1,000 for a school year.

Generally speaking, applications for tuition insurance must be postmarked by the opening day of classes.

Representatives from Dewar, based in Boston, and TuitionGuardian, based in Tampa, Fla., could not be reached for comment.

According to their marketing materials, it appears all of the tuition insurance companies maintain a similar policy: Tuition insurance is not drop-out insurance.

If a student simply skipped classes, got sidetracked by drugs or injured himself, he is out of luck. The policies will only reimburse students and their families for medical withdrawals.

Mental health issues may not be insured unless the student is hospitalized for at least two days. The Dewar Tuition Protection Plan offered at CMU will refund 60 percent of the insurance policy if a student withdraws from class because of a medically diagnosed psychological illness.

"Carnegie Mellon does have a small number of students who participate in the tuition insurance plan, and some of them have benefitted from the insurance when they have had to take a leave of absence from the university," said Kenneth Walters, a CMU spokesman.

GradGuard reimburses students and families 100 percent for mental health problems. The GradGuard policy also reimburses policyholders if a student withdraws because of the death of a family member. It will also pay if the guardian or person responsible for paying the student's tuition dies.

Robert Hunter, director of insurance for the Consumer Federation of America in Washington, D.C., said he is not convinced tuition insurance is a good economic decision for most families.

"Although I wouldn't buy it, I would never say everyone shouldn't," Mr. Hunter said. "There's always someone who'll lose sleep at night if they didn't have it. But most people shouldn't buy it.

"You need to make sure a child's current [medical] condition isn't excluded as a pre-existing condition," he said. "Like any other insurance, you have to make sure it covers what you are really worried about."

Mr. Fees said GradGuard began offering tuition insurance plans nationwide in 2010. The multimillion company has 38 employees and has written more than 200,000 tuition insurance policies this year. Today, the policies can be purchased through individual colleges and universities as well as through Sallie Mae, a private student loan agency.

Sallie Mae buys $5,000 worth of tuition insurance through GradGuard for each student who applies for private student loans. It's not a lot of insurance, but it provides some level protection to families.

Students and families also can buy additional tuition insurance directly through the Sallie Mae website.

Tim Grant: tgrant@post-gazette.com or 412-263-1591.

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