Michigan Proprietary School Bond

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Michigan Proprietary School Bond

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 Michigan Proprietary School bond needs.

What Are Michigan Proprietary School Bonds?

Michigan proprietary school bonds have one overriding purpose: to provide recourse for students who have prepaid tuition but have not completed the courses they paid for at the time a proprietary school ceases operations and have not received a refund from the school. There also are other situations in which students may be eligible to file claims for damages.

Who Needs Them?

The Michigan Department of Labor and Economic Growth, Proprietary School Unit, issues licenses to the owners of proprietary schools. Each school owner is required to provide a surety bond as a condition for licensure. The bond must be continuously renewed to prevent license revocation. 

The required bond amount will be equal to or greater than the prepaid tuition collected from all students who are enrolled but have not completed the courses or programs to which their tuition payments entitle them. The Department will determine the appropriate bond amount for each applicant.

How Do They Work?

The three parties to a Michigan proprietary school bond are referred to as the obligee, the principal, and the surety. The Department of Labor and Economic Growth is the obligee requiring the bond; the school owner is the principal required to purchase the bond; and the party guaranteeing the bond is the surety

In purchasing a Michigan proprietary school bond, the principal agrees to comply with all applicable state laws and regulations. In the event of a violation, including closing its doors without refunding prepaid tuition, any party financially harmed by the principal’s actions can seek compensation by filing a claim for damages.

How Are Claims Paid?

The principal is legally obligated to pay all claims the surety finds to be legitimate, but the surety guarantees their payment. Specifically, the surety has agreed to extend credit to the principal for the purpose of paying claims. In practice, the surety normally pays a valid claim initially, creating a debt the principal must repay. If not repaid for claims paid on the principal’s behalf, the surety can take legal action to recover the funds.

How Much Do They Cost?

The annual premium for a Michigan proprietary school bond is the product of multiplying the required bond amount established by the obligee and the premium rate set by the surety through underwriting. 

The main underwriting factor influencing the premium rate is the risk of the surety not being repaid for claims paid on the principal’s behalf. Although the underwriters consider other factors as well, the principal’s personal credit score is the best measure of the risk of nonrepayment. 

A high credit score is viewed as a sign of low risk to the surety, resulting in a low premium rate. A lower credit score is interpreted as a sign of higher risk, so the premium rate will be higher.

The average well-qualified principal will pay a premium rate that’s in the range of one to three percent.

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Our surety bond professionals will get you the Michigan proprietary school bond you need at a competitive rate.