Private educational institutions such as private primary schools, colleges, and vocational schools form an important part of our educational system. However, since these private institutions typically fund their operations through tuition payments, it’s important that an accountability mechanism exists to protect the students and families who entrust them with tuition dollars.
Private school surety bonds, also known as education bonds, are a common way for regulators to ensure that private schools are accountable to tuition payers. What is a school bond for a private school, and how can an educational institution purchase one? We’ll cover these important questions, beginning with the basics of how surety bonds work.
Surety Bond Fundamentals
Here’s our first question: What is a surety bond, anyway? A surety bond is a legally binding contract between three parties:
- Principal: The party that purchases the surety bond to guarantee its obligation. In this case, the private school is the principal. (“Principal” is a bond term and has nothing to do with the position of a school principal.)
- Obligee: The party that requires the institution to buy a surety bond. In this case, the obligee is the state government agency that regulates private education.
- Surety: The insurance company that writes the surety bond and provides a financial guarantee.
The bond guarantees that the educational institution will comply with the terms established therein. If the principal causes another party financial injury by breaking the terms of the bond, the surety will guarantee the principal’s obligation and pay the injured party if the principal will not or cannot. However, the principal must reimburse the surety fully for any claims that the surety pays out.
Note: Private school surety bonds are not the same thing as the school bonds that fund school construction and improvement projects. Surety bonds are intended to satisfy regulatory requirements and protect the public, not to raise funds.
What Is a School Bond (Private School Bond)?
Many state governments in the U.S. require private educational institutions to obtain state licensure. In these states, one important part of the private school licensing process is that the institution must purchase a private education bond. These legal and financial contracts help ensure that private schools conduct their financial affairs honestly and transparently.
Any private educational institution that accepts tuition might be required to get a private school surety bond. Depending on the U.S. state, that list can potentially include:
- Elementary, middle, and high schools
- Trade and vocational schools
- Colleges and universities
- Online educational institutions
- Driving schools
To learn if your state requires private school bonds, consult your state’s Department of Education.
Why Are Private School Bonds Required?
Unfortunately, private educational institutions are occasionally forced to close due to financial pressures, mismanagement, or other factors. Since many of these institutions accept tuition weeks or months in advance, the surety bond guarantees that people who paid tuition can be reimbursed if the school unexpectedly ceases to operate.
In some cases, private school bonds may also protect against general financial damages that tuition payers may suffer as a result of a private institution’s financial mismanagement. The vast majority of private educational institutions will never have to deal with a claim against their education surety bond, but the requirement is important for establishing accountability.
How to Get a Private School Bond
To get a private school bond, your institution will need to apply to a surety for bond coverage. The easiest way to apply is through a surety bond broker like Surety Bonds Direct, where you’ll automatically get the lowest quote from among dozens of reputable sureties.
To get started, choose the state in which you need a private school bond and enter your information to apply for a bond quote. Surety Bonds Direct will provide you with a free surety bond quote within a few minutes to a few hours (depending on bond type.) Our bond professionals will even complete your bond paperwork and file it with the relevant agency for you—all that’s required is your signature.
Cost of a Private School Bond
Several different factors affect the surety bond cost for private school bonds, including:
- Required bond coverage amount
- Bond principal’s credit score and financial history
- Bond principal’s history of surety bond claims
Surety Bonds Direct makes it more affordable for private educational institutions to get the surety bonds they need. We offer wholesale prices on surety bonds from a wide network of reliable sureties, as well as multiple options for getting a surety bond with bad credit.
