Maryland Private Career School Bond
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What Are Maryland Private Career School Bonds?
Students who enroll in private career schools pay tuition in advance, in exchange for certain educational services to be delivered over a certain period of time, such as an academic term or semester. As with any fee for services arrangement, there is always the possibility of contractual nonperformance, which entitles students (or parents) to a refund of unearned tuition.
Maryland private career school bonds provide a way to compensate those entitled to a refund if a school should cease operations without delivering the prepaid educational services or issuing tuition refunds.
Who Needs Them?
The Maryland Higher Education Commission licenses private career schools operating anywhere in the state and requires a private career school bond from each institution applying for licensure. The bond must be continuous until canceled. Failing to have an active bond in force at all times can result in suspension of the school’s operating license.
Purchasing an Idaho proprietary school bond and renewing it at each expiration is a prerequisite for maintaining and active registration. The required bond amount varies by school and by year, as it is based on gross tuition collected. The Higher Education Commission (the “obligee” requiring the bond) will advise each school owner (the “principal” purchasing the bond) of the coverage amount required.
How Do They Work?
In addition to the obligee and the principal, every Maryland private career school bond involves a third party (the bond’s “surety”). The bond is a legal contract that is binding on all three parties. A student, parent, or guardian who has experienced a financial loss caused by the principal’s unlawful or unethical actions may file a claim for monetary damages. The surety investigates each claim to establish its legitimacy.
How Are Claims Paid?
The terms of a Maryland private career school bond legally obligate the principal to pay all claims found by the surety to be valid. But it’s normally the surety that makes the payment to the claimant initially. That’s because the surety has guaranteed that the principal will pay all valid claims.
But that initial payment by the surety is not a gift to the principal. It’s a loan that must be repaid. If it is not, the surety will take legal action against the principal to collect on the debt.
How Much Do They Cost?
The annual premium for a Maryland private career school bond is the product of multiplying two numbers: the required bond amount established for the school by the obligee and the premium rate set by the surety. Consequently, the premium cost varies for each bond.
The premium rate is based largely on the principal’s personal credit score as a measure of the risk of the surety not being repaid for claims paid on the principal’s behalf. A high credit score means the risk to the surety is low, which is deserving of a low premium rate. A principal with a lower credit score is considered to pose a greater risk to the surety and, consequently, will be assigned a higher premium rate.
The average well-qualified principal will pay a premium rate that’s in the range of one to three percent.
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