Georgia Nonpublic Postsecondary Educational Institution Bond
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What Are Georgia Nonpublic Postsecondary Educational Institution Bonds?
The surety bonds required from private postsecondary schools in Georgia protect the state as well as students and parents who have prepaid tuition and fees against financial loss due to the unlawful or unethical actions of a school, specifically the actions of the school’s owner(s).
The terms of the bond obligate a school to operate in full compliance with the Nonpublic Postsecondary Educational Institutions Act of 1990 (amended in 2021). That includes refunding prepaid tuition and fees if the school fails to deliver the educational services covered by those funds. (For non-degree programs, those services are spelled out in the student contract.) Infractions that cause financial harm to the state, students, or parents can result in claims being filed against the bond by injured parties.
Who Needs Them?
To operate in Georgia, private postsecondary schools must be authorized by the Nonpublic Postsecondary Education Commission. A key step in obtaining that authorization is to purchase a Georgia nonpublic postsecondary educational institution bond in an amount that is based on the prior year’s gross tuition revenue or estimated tuition revenue for the current year, whichever is larger. The minimum bond amount is $20,000 and the maximum is $450,000.
How Do They Work?
There are three parties to a Georgia nonpublic postsecondary educational institution bond: the Nonpublic Postsecondary Education Commission (the “obligee” requiring the bond), the owner of a private postsecondary school (the “principal” purchasing the bond), and the bond’s guarantor (the “surety”). The terms of the bond legally obligate the principal to pay all valid claims. It’s the surety’s responsibility to determine which bonds are legitimate and must be paid.
How Are Claims Paid?
The surety also guarantees the principal’s payment of claims. Consequently, the usual practice is for the surety to pay a valid claim initially, to ensure prompt resolution. That payment is a loan to the principal, who must then repay the debt to the surety. The surety is indemnified against any legal responsibility for claims, and has the right to take legal action against a principal who fails to reimburse the surety for claims paid on the principal’s behalf.
How Much Do They Cost?
They sell Georgia nonpublic postsecondary educational institution bonds for an annual premium that is calculated by multiplying two numbers—the required bond amount and the premium rate set by the surety.
The rate is determined by the underwriters’ assessment of the risk that paying claims on behalf of the principal entails. The greater the risk of the surety not being repaid by the principal, the higher the premium rate will be. The principal’s personal credit score measures that risk. A high credit score is correlated with low risk, which deserves a low premium rate, while a lower score suggests a higher risk level and results in 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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