Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your Indiana private school bond needs.
What Are Indiana Private School Bonds?
Indiana private school bonds protect students and the state of Indiana against financial harm caused by a private school’s violation of the student contract (a “fee for services” agreement). Any violation that involves not delivering the educational services for which students (or their parents of sponsors) have paid tuition for, and for which no refund has been issued, gives the injured party the right to file a claim for damages. The main concern is that a school could close down for good without “teaching out” its last student cohort and without refunding their tuition. A private school bond provides a way to return unearned tuition to those who should have been issued refunds but weren’t.
Who Needs Them?
The Indiana office for Career and Technical Schools (OCTS), part of the state’s Department of Workforce Development, accredits non-degree granting, non-credit bearing postsecondary proprietary educational institutions. Providing OCTS (the “obligee” requiring the bond) with a $25,000 surety bond is a mandatory step in the accreditation process for such institutions that are not based in Indiana. (Indiana-based schools must contribute to a student tuition recovery fund rather than purchase an Indiana private school bond.). The bond must be purchased in the name of the school’s owner(s) (the bond’s “principal”).
How Do They Work?
The bond’s guarantor (known as the “surety”) is the third party to the legally binding Indiana private school bond agreement. In purchasing the bond, the surety agrees to extend credit to the principal, if necessary, for the purpose of paying claims against the bond.
When a claim is filed, the first thing that happens is that the surety conducts an investigation to ensure that it is valid. The principal is legally obligated to pay all valid claims.
How Are Claims Paid?
The usual practice is for the surety to lend the funds to the principal to pay a valid claim but to issue the check directly to the claimant. The principal must then repay that debt to the surety. Failing to repay the surety can result in the surety taking legal action against the principal to recover the funds.
How Much Do They Cost?
Indiana private school bonds are sold for an annual premium that is the product of multiplying the $25,000 bond amount by the premium rate established by the surety on a case-by-case basis through underwriting. The primary underwriting concern is the risk of the principal incurring claims and not reimbursing the surety for paying them on the principal’s behalf.
That risk assessment relies heavily on the principal’s personal credit score as a proxy for risk. A high credit score is correlated with a low risk of nonrepayment, which results in a low premium rate. A low credit score, on the other hand, is a sign of elevated risk and warrants a substantially 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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