While many families and students turn to loans to fill gaps in paying for college, a tuition installment plan is one method to handle these hefty bills — it might even reduce or eliminate the need to take on debt.
“It’s definitely worth finding out whether the college or university has that option available as opposed to finding other loans,” says Jaqueline Smith, of Boston, who used an installment plan to pay her 19-year-old daughter’s tuition at North Carolina State University.
The career coach says that using an installment plan was a straightforward process and helped her avoid taking out a loan. “It was really simple and they withdrew the payments monthly,” she says.
Almost half of parents — 44 percent — say they find it difficult to balance paying college-related costs with other expenses, according to a recent Sallie Mae survey.
An installment plan allows a parent or student to break up tuition, paying a balance over a 9- or 10-month period. So if there’s $5,000 gap in paying tuition, for example, the remaining balance can be spread over 10 months with a $500 monthly payment.
“An installment plan just makes it easier because it spread it over a time period,” says Melissa Sotudeh, a wealth advisor at Halpern Financial, Inc. in Rockville, Maryland. “It’s great because it helps families to plan payments during the school year.”
But these plans vary by college or university. Here are some facts families should know about tuition installment plans.
[Find out what lessons Mom and Dad need to know about paying for college.]
1. A few schools have more than one installment plan. Most schools only offer one installment plan, usually managed through a third-party service, experts say.
A handful of larger universities offer more than one installment program, experts say. New York University, as an example, offers more than one interest-free installment plan: The Deferred Payment Plan, with three set payments during a semester, and the Tuition Pay Plan, administered through a third party.
“It’s usually the better endowed schools that have the ability to do that,” says Joe Orsolini, of Glen Ellyn, Illinois, a financial planner at College Aid Planners, Inc. “Your state schools don’t tend to offer that too much.” But experts say not every school has an installment plan.
“For the schools that do not have an installment payment plan, there are private organizations that do this but generally those fees are higher,” says Sotudeh.
[Discover four fast food jobs that pay for college.]
2. Most plans have an associated enrollment fee. “They usually have a small cost associated with them — usually a service fee, which tends to be around $30 to $100,” says Shannon Vasconcelos, a college finance consultant at College Coach and former financial aid officer at Boston University and Tufts University.
The Smith family, for example, pays a $45 enrollment fee for North Carolina State’s interest-free plan — a service managed by Tuition Management Systems, which many schools use. Payments for each semester are broken out to even amounts over a five-month period.
“It’s a monthly payment that is taken out every semester starting in June and goes until November. And then it starts up again for the spring semester,” says the Massachusetts mother.
3. Some tuition plans charge interest fees on the tuition balance. “I tell them to look if there is a fee involved or an interest rate charge,” says Orsolini from College Aid Planners.
Most plans just charge an enrollment fee, but some tack on interest.
CUNY–Hunter College and CUNY–LaGuardia Community College, to name a few schools, use Higher One, Inc. The company, a third-party service, tacks on an interest rate charge to tuition installments. A tuition balance of $2,000 through Higher One may have a $35 enrollment fee and 3.85 percent interest charge, according to the company’s website.
But even with a fee of 3.85 percent, Orsolini says, it’s still less than the interest charged on a Parent PLUS loan. A direct Parent PLUS loan disbursed after July 1, 2016, carries a fixed 6.31 percent interest rate.
“That’s a much higher interest rate,” the Illinois wealth advisor says.
[Explore how private colleges are increasing tuition discounts.]
4. Many plans don’t accept credit cards, and some charge a fee for using the option. Most of these plans don’t allow payments by credit cards. But if they do, there’s usually a convenience charge.
“You may be charged for the privilege of using your credit card,” says College Coach financial advisor Vasconcelos. “I’ve seen it in the 2 to 3 percent ballpark.”
For that reason, Smith chose to use her checking account when she enrolled into the tuition installment plan to pay for her daughter’s education.
5. Most wealth planners advise picking an installment plan only if it stays within the family budget. Financial advisors caution families who aren’t able to make the monthly payments to consider other options such as paying in a lump sum with loans and tuition assistance — spreading out payments may only delay the inevitable.
“It has to be a family that can truly cover the installment costs,” says Sotudeh from Halpern Financial. “If they are not comfortable to cover these installment costs, then they need make sure they have this nailed down through grants, loans and scholarships before school starts.”
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
More from U.S. News
Tackle Rising Tuition in Smaller, More Manageable Segments
Unpaid College Tuition Bills Rise, Survey Finds
Paying a Tuition Bill: What to Know About Installment Plans originally appeared on usnews.com