Washington, D.C., Non-degree Postsecondary 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 Washington D.C., Non-degree Postsecondary School bond needs.
What Are Washington, D.C., Non-degree Postsecondary School Bonds?
These bonds provide some financial protection–for students (or parents) who have paid tuition and fees for certain educational services–in the event the school fails to deliver those services or issue tuition refunds. They obligate school owners to operate in full compliance with applicable laws of the District of Columbia and, specifically, with the D.C. Education Licensure Commission Act of 1976. Failure to do so can result in claims for damages filed against the bond by students and/or parents.
Who Needs Them?
Any private non-degree postsecondary school seeking to operate in Washington, D.C. must obtain a license from the District’s Education Licensure Commission (the “obligee” requiring the bond). Purchasing a surety bond is a mandatory step in the licensing process. The required bond amount is determined based on the number of students and the annual net income from tuition.
How Do They Work?
Any infraction by the school owner (the bond’s principal) that results in financial harm to a student or parent gives the injured party the right to seek compensation by filing a claim against the bond. This is most common when a school closes its doors without “teaching out” students who had prepaid tuition and fees or refunding their money. The bond legally obligates the principal to pay all valid claims, However, there is a third party to the bond (the “surety”) that has guaranteed the principal will pay them.
How Are Claims Paid?
The surety will investigate every claim against the bond to determine whether it is legitimate. As the bond’s guarantor, the surety will pay a valid claim initially, but the surety bond agreement indemnifies the surety against any legal liability for claims. That initial payment is an extension of credit to the principal, who is required by law to repay that debt to the surety. If not repaid, the surety can take legal action against the principal to secure repayment.
How Much Do They Cost?
The annual premium for a Washington, D.C. non-degree postsecondary school bond is the product of multiplying the required bond amount by the premium rate assigned to the principal by the surety through an underwriting process. That process assesses the risk the surety will take on in agreeing to extend credit to the principal for the purpose of paying claims. The primary risk, of course, is not being repaid for claims paid on the principal’s behalf.
The risk level is determined based on the principal’s personal credit score. A high credit score means the risk to the surety is low, which results in a low premium rate. The reverse is also true. A low credit score suggests a higher risk level and warrants a higher premium rate.
The average well-qualified principal will pay a premium rate in the range of one to three percent.
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