North Carolina 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 North Carolina proprietary school bond needs.
What Are North Carolina Proprietary School Bonds?
The State Board of community colleges must authorize any proprietary school to operate in the state of North Carolina. The authorization process is similar to licensing, and a North Carolina proprietary school bond functions like a license bond. The bond provides financial protection for students (or their sponsors) who have paid tuition that entitles them to receive the specific services laid out in the student contract.
When a school ceases operations, regardless of the reason, without delivering all such services, and does not refund tuition within 30 days, the injured parties can file claims for damages against the bond.
Who Needs Them?
Every proprietary school applying for authorization to operate in North Carolina must purchase a North Carolina proprietary school bond in an amount to be determined by the State Board of Community Colleges (the “obligee” requiring the bond). The required bond amount must be equal to the highest amount of unearned, prepaid tuition held by the school during the previous year, with a minimum of $25,000 and a maximum of $125,000.
The bond is issued to the school’s owner (known as the “principal”), not to the school as an entity. There must be an active bond in force at all times to prevent suspension or loss of the school’s authorization to operate in North Carolina.
How Do They Work?
The third party to the legally binding surety bond agreement is the entity guaranteeing the payment of claims by agreeing to extend credit to the principal for that purpose. This guarantor (the “surety”) is indemnified by the surety bond agreement and is responsible for determining which claims are legitimate and must be paid.
How Are Claims Paid?
The principal is legally obligated to pay all valid claims, but the surety normally will pay them initially to live up to its guarantee. That payment is an extension of credit to the principal and creates a debt that the principal then must repay to the surety.
The surety can sue a principal who does not repay the surety and they will have to pay legal fees and court costs as well as the debt owed to the surety.
How Much Do They Cost?
The principal will pay an annual premium determined by multiplying the required bond amount by the premium rate. The surety assigns each principal a premium rate commensurate with the perceived risk of the surety not being repaid for claims paid on the principal’s behalf. The underwriters establish the risk level based largely on the principal’s personal credit score.
A high credit score is a sign of low risk and earns the principal a low premium rate. The reverse is also true, so a principal with a low credit score will pay 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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