Illinois Private Business and Vocational 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 Illinois private business and vocational school bond needs.
What Are Illinois Private Business and Vocational School Bonds?
Illinois private business and vocational school bonds are surety bonds that provide financial protection for students (or their parents or sponsors) who have paid tuition and fees in advance of receiving instruction. They ensure that those who have prepaid tuition and fees receive the educational services they have paid for or, if not, are compensated for their financial loss. A prime example is the compensation the school is obligated to provide if it closes its doors without issuing refunds or “teaching out” all students who have prepaid tuition and fees.
Who Needs Them?
Every private business or vocational school opening in Illinois must apply for a permit of approval from the Illinois Board of Higher Education (IBHE), which must be renewed annually. Purchasing an Illinois private business and vocational school bond is a mandatory step in the permitting process.
The required bond amount is established by IBHE (the “obligee” requiring the bond). It must be equal to the highest amount of prepaid tuition collected during a standard school term, and high enough to fully repay all prepaid tuition if the school’s owner (the “principal” purchasing the bond) should close down the school without issuing refunds. There must be an active bond in force at all times to avoid revocation of the school’s permit of approval.
How Do They Work?
There is a third party to an Illinois private business and vocational school bond in addition to the obligee and the principal. That third party (the “surety”) is the bond’s guarantor.
The terms of the bond require the principal to operate in compliance with the Private Business and Vocational Schools Act of 2012 (Public Act 97-650). Any violation that causes financial harm to the state or an individual who has prepaid tuition and fees without receiving the educational services specified in the student contract can result in claims for damages being filed against the bond by the injured parties.
How Are Claims Paid?
Although the principal is legally obligated to pay all valid claims, the surety has agreed to extend credit to the principal to guarantee their payment. Most often, the surety will honor its guarantee by paying a valid claim initially, rather than wait for the principal to pay it. But the principal must subsequently repay that debt to the surety or risk being sued by the surety to recover the claim amount.
How Much Do They Cost?
The annual premium for an Illinois private business and vocational school bond is the product of multiplying the required bond amount established by the obligee and the premium rate set by the surety. The premium rate is based on an underwriting assessment of the risk the surety will be taking on in agreeing to extend credit to the principal by paying claims on the principal’s behalf.
The key measure of that risk is the principal’s personal credit score—the best predictor of whether or not the principal will repay the surety. A creditworthy principal presents relatively little risk to the surety and is accorded a low premium rate. A less creditworthy principal will pay a higher premium rate to offset the greater risk to the surety.
The average well-qualified principal will pay a premium rate that’s in the range of one to four percent.
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