Colorado Private Occupational School Bond
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What Are Colorado Private Occupational School Bonds?
Colorado private occupational school bonds are surety bonds that provide financial protection for students enrolled in private occupational schools who have prepaid tuition and fees. Those funds could be at risk if a school should cease operating before the students have completed their course of study. The bond ensures funds will be available to compensate students who have not received a refund of their prepaid tuition and fees from the school.
Who Needs Them?
The Colorado Department of Higher Education, Division of Private Occupational Schools, requires a bond from every occupational school applying for an initial or renewal license, known as a Certificate of Approval, or adding a new program.
The required bond amount is determined by the Department of Higher Education (the bond’s “obligee”) on a case-by-case basis and must be equal to the estimated maximum revenue from prepaid tuition and fees for the current school year.
How Do They Work?
A Colorado private occupational school bond obligates the school’s owner (the bond’s “principal”) to do business in full compliance with Title 12, Article 19 of the Colorado Revised Statutes and all other applicable state regulations. If the school should cease operations before students have received the instruction for which they have prepaid tuition and fees, any student, parent, or guardian may file a claim against the bond for the amount of the unearned tuition and fees.
How Are Claims Paid?
The terms of the surety bond agreement make the principal solely responsible for paying valid claims. However, the third party to a Colorado private occupational school bond (the “surety”) guarantees that they will be paid. Consequently, when the surety receives a claim and finds it to be valid, the surety will go ahead and pay it on the principal’s behalf.
The fact that the surety writes a check to the claimant does not relieve the principal of the legal obligation to pay claims. Instead of paying the claim directly, the principal must reimburse the surety for the claim amount. The surety can take legal action against the principal if not repaid within a reasonable timeframe.
How Much Do They Cost?
The annual premium for a Colorado private occupational school bond depends on two variables: the required bond amount established by the obligee and the premium rate set by the surety through underwriting. The premium rate will reflect how risky the underwriters believe it is for the surety to pay claims with the expectation of being repaid by the principal.
The assumption is that a well-qualified principal with good personal credit is unlikely to fail to repay the surety for claims paid on the principal’s behalf and is therefore deserving of a low premium rate. Someone with a lower personal credit score presents greater risk to the surety and will be assigned 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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