Wisconsin Private School Bonds
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What Are Wisconsin Private School Bonds?
Wisconsin private school bonds are surety bonds that provide financial protection for students who have paid tuition and fees, or whose tuition and fees have been paid by a parent or sponsor. A private school that charges tuition is offering a fee for services arrangement. You pay the fee, and you receive the services.
A failure to deliver those services after payment has been made should entitle the student, parent, or sponsor to a refund of unearned tuition (tuition for which the promised services have not been received). Unearned tuition is whatever tuition and fees were paid in advance without receiving the corresponding services.
So, if a Wisconsin private school were to cease operating after tuition payments have been collected from students, but before the educational services had been delivered in full, the unearned portion of the tuition would need to be refunded.
A Wisconsin private school bond ensures that those who have paid tuition and have not received the services promised in the student contract can be compensated for unearned tuition or other financial damages.
Who Needs Them?
The Wisconsin Educational Approval Program (WEAP) requires all private schools in the state to provide a surety bond as a mandatory step in the approval process. The owner of each private school must purchase a surety bond in an amount that is based on the maximum prepaid unearned tuition and fees the school collects during a semester, quarter, or a year. The required bond amount is calculated as part of the application procedure, using a formula provided by WEAP (the obligee requiring the bond). The minimum amount is $1,000 and the maximum is $200,000.
The owner of the school must purchase the bond when applying for approval and is referred to as the bond’s principal. The bond must be renewed continuously as long as the school is in operation.
How Do They Work?
There is one more party to a private school bond, along with the obligee and the principal—the bond’s guarantor, known as the surety. The principal is legally obligated to pay valid claims, but the surety guarantees their payment by agreeing to lend the principal money to cover the claim amount.
How Are Claims Paid?
Upon receipt of a new claim, the surety conducts an investigation into its legitimacy before deciding that it should be paid. Then, because the surety has guaranteed the payment of claims and wants to expedite matters, the surety typically pays the claim initially, and is then repaid by the principal for the resulting debt. Not repaying the debt to the surety exposes the principal to the risk of a lawsuit to recover the funds.
How Much Do They Cost?
The annual premium cost for a Wisconsin private school bond is the result of multiplying the required bond amount by the premium rate. The premium rate is the result of an underwriting assessment of the risk that the surety will take on in paying claims on the principal's behalf.
The average well-qualified principal will pay a premium rate that’s in the range of one to three percent.
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