Missouri 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 Missouri Proprietary School bond needs.
What Are Missouri Proprietary School Bonds?
Missouri proprietary school bonds provide financial protection for students (and parents or sponsors) who have paid tuition and fees with the expectation of receiving the educational services outlined in the student contract. Purchasing a Missouri proprietary school bond obligates such educational institutions to operate in full compliance with the applicable portions of the Missouri Revised Statutes and the regulations governing proprietary schools.
Any violation that causes financial harm to those who have prepaid tuition and fees gives those individuals the right to file a claim against the bond. This protection is particularly important if a Missouri proprietary school ceases operations before enrolled students have completed the coursework they have already paid for, without the school issuing refunds.
Who Needs Them?
The Missouri Department of Higher Education requires every proprietary school owner applying for a license to do business in the state to furnish a surety bond in an amount equal to at least 10% of the previous year’s gross tuition revenue. This minimum bond amount required is $100, and the maximum is $100,000. The bond amount is determined by MDHE (the “obligee” requiring the bond).
Missouri proprietary school bonds must be renewed annually, so that there is always an active bond in force. Failure to renew can result in revocation of the school’s operating certificate.
How Do They Work?
A Missouri proprietary school bond is a legally binding contract involving three parties: MDHE in its role as obligee, the school owner (the “principal” purchasing the bond), and the bond’s guarantor (known as the “surety”). In approving the principal’s bond application, the surety specifically guarantees the payment of valid claims, but the legal obligation to pay them belongs only to the principal.
How Are Claims Paid?
When a claim is received, the surety will investigate to make sure it is legitimate before approving it for payment. Because the surety has guaranteed the principal’s payment of claims, the usual practice is for the surety to pay a valid claim initially and then be repaid by the principal.
That initial payment is, in essence, a loan from the surety to the principal, and like any other loan, it must be repaid. The terms of the surety bond agreement actually indemnify the surety against any legal responsibility for claims.
Not repaying the surety can result in the surety taking legal action against the principal.
How Much Do They Cost?
The annual premium for a Missouri proprietary school bond is a small percentage of the required bond amount established by the obligee. That percentage is the premium rate, which is set by the surety through underwriting.
The primary goal of underwriting is to assess the risk the surety will take on in guaranteeing the bond—specifically, the risk of not being repaid for claims paid on the principal’s behalf.
In assessing that risk, the underwriters rely heavily on the principal’s personal credit score. The higher the credit score, the lower the risk to the surety is assumed to be. A low-risk level should result in a low premium rate. A lower credit score is a sign of greater 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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