Rhode Island Proprietary School Bonds
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 Rhode Island proprietary school bond needs.
What Are Rhode Island Proprietary School Bonds?
Rhode Island requires proprietary school bonds to provide financial protection against the loss of prepaid tuition in the event that a proprietary school authorized to operate in Rhode Island closes down permanently without delivering the educational services paid for and without refunding unearned tuition. Students, parents, or sponsors who have prepaid tuition can file a claim against the school’s Rhode Island proprietary school bond to recover such unearned tuition.
In fact, any violation of chapter 73 of the Pennsylvania code that results in financial harm 2 those who have paid tuition and fees gives the injured party the right to file a claim for damages against the bond.
Who Needs Them?
School owners applying for authorization to operate in Rhode Island must undergo a pre-application assessment of financial condition. The purpose is to ensure that all schools operating in the state meet Rhode island’s fiscal responsibility standards.
Rhode Island defines a proprietary school as “any organization, association, corporation, partnership, limited liability corporation, sole proprietorship, or any other entity operated on a for profit or nonprofit basis that operates or seeks to operate to provide instruction or training for a business, trade, technical, industrial or other occupation, and that is not specifically exempted.” Proprietary schools do not grant degrees of any kind.
Based on the pre-application assessment, the Council on Postsecondary Education (the obligee requiring the bond) will decide whether the school’s owner (the bond’s “principal”) must furnish a surety bond, and if so, in what amount.
How Do They Work?
There are three parties to a Rhode Island proprietary school bond: the obligee requiring the bond, the principal purchasing the bond, and the bond’s guarantor, known as the surety. The bond creates a legally binding contract among all three of these parties, each of them with different concerns and responsibilities.
When an injured party files a claim against a Rhode Island proprietary school bond, the surety, having guaranteed payment of all valid claims, first will conduct an investigation to ensure that the claim is legitimate.
How Are Claims Paid?
The principal is legally obligated by the terms of the surety bond to pay all valid claims. However, because the surety has guaranteed the payment of claims, the custom is for the surety to pay a claim initially and then be reimbursed later by the principal. In essence, that initial payment of the claim is an extension of credit to the principal. The principal must now repay that debt to the surety or risk being sued by the surety to recover the claim amount.
How Much Do They Cost?
Rhode Island proprietary school bonds are subject to underwriting. The underwriters primarily are concerned about the risk the surety will be assuming in guaranteeing the payment of claims by the principal. That risk is best measured by the principal’s personal credit score.
A high credit score is equated with low risk to the surety, which deserves a low premium rate. The lower the credit score, the higher the risk and the higher the 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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