As the bill for college rises nationally, some families seek alternative ways to pay tuition and avoid student loan debt.
Rather than struggling to pay the large sum of tuition and other fees all at once, an installment plan breaks up the cost into multiple smaller payments over a period of time.
“I don’t think parents realize that there are other options besides going right out and getting a loan,” says Joseph Orsolini, president of College Aid Planners.
College tuition has increased significantly across private and public universities over the last 20 years. Tuition and fees at private universities went up 134%, and out-of-state and in-state tuition and fees at public universities rose 141% and 175%, respectively, according to 2022-2023 U.S. News data.
How Tuition Payment Plans Work
Payment plans are an option at most colleges and universities. Steve Lindley, director of financial aid at St. Olaf College in Minnesota, says 15% to 20% of the college’s 3,000-student population used an installment plan during the 2021-2022 school year.
In an installment plan, students pay smaller amounts of tuition to their university in multiple payments to decrease the money a family needs upfront to afford college. Some families use installment plans to gain revenue on interest in a savings account.
[Read: Reasons to Pay Student Loan Interest During School.]
Connie Livingston, head of college counselors at the admissions and financial counseling service Empowerly, says she used an installment plan — sometimes known as a payment plan — to pay for her son’s first year of college tuition.
“Even if you’ve been really good about saving for college and you’ve got a chunk of money stashed away,” Livingston says, “I would recommend not taking that whole chunk of money and paying off your tuition balance right at the beginning of the year because savings rates right now — interest rates are so high — it actually makes more sense to leave that money in a high-yield savings account, and take advantage of the installment plan.”
However, installment plans vary across colleges and universities, so be sure to check with each school you’re considering.
Here are five tips families can use when considering an installment plan, according to experts.
Most Installment Plans Have an Enrollment Fee
Enrollment fees for installment programs can vary from $15 to $52 or more per semester, depending on the institution. However, the enrollment fee can still be less expensive for a family than the interest charged on a student loan.
Alisa Abadinsky, associate controller of financial services at the University of Maryland, says families can also pay tuition upfront for one semester and then decide to use an installment plan to pay for a different semester. For example, a family can pay half of a school term with an installment plan and pay the next semester of tuition in full. This can save money because a fee is typically charged every semester a student uses an installment plan.
“If you have funds available and you just need more time than getting a bill at the start of the term, that would be an area we would highly encourage a family to look at a payment plan,” Abadinsky says.
Explore Other Options Before Enrolling in a Payment Plan
Before considering a tuition installment plan, students should research other available financial resources to help pay for college.
Orsolini says students should first complete the Free Application for Federal Student Aid, or FAFSA, to see if they qualify for a federal Pell Grant, federal loans and work study, and also research the federal Parent PLUS loan program.
“Make sure you hit those resources first before you look above and beyond and outside of that system, because private student loans really will tend to bury people pretty quickly,” Orsolini says.
Private student loans tend to have less flexible repayment options without forgiveness plans, are harder to qualify for and often have higher interest rates compared to federal loans.
[Read: How to Pay for College Using These Overlooked Strategies.]
Some universities require the installment plan holder to adjust their plan if it is rebalanced, which means the total payment changes because of new income such as financial aid, Abadinsky says.
“Read the agreement and understand what will happen when they go on a payment plan because schools manage the payment plan differently,” she says.
Some Schools Have More Than One Installment Plan
Families should look for universities with different payment options if an installment plan is the main way they want to pay for their student’s college.
Larger universities, such as New York University, offer three separate installment plan options: an interest-free semester-based plan, a deferred payment plan and a fixed payment plan.
Some schools offer installment plans for different types of students.
For example, Florida State University provides a traditional payment plan for undergraduate students and a separate one for graduate students. The university also services the plan through a third-party provider.
Gilman Page, director of student business services at Florida State, says students sign up online for installment plans without having to reach out to the university staff.
[READ: Look for These Red Flags in a College’s Finances]
“They split their tuition into however many installments, they can sign up to have it automatically deducted from their bank account on intervals if they want to do that and then that third party also emails them when the payment is coming due with a reminder,” Gilman says. “I think it makes it easier for the students.”
Paying Tuition With a Credit Card May Not Be Possible
If a college accepts a credit card for an installment plan, there is usually a convenience fee attached.
Livingston says a family should make sure that such a fee can fit into their budget. She says while she recommends against paying this way – as do other experts – using a credit card can be an OK option if you pay off your credit card balance in full each month to avoid paying interest.
Create a Budget for Your Whole Academic Career
While the total cost of college can be shocking, families should budget how much their student’s entire academic career will cost. It’s usually less than the sticker price, but families should get a sense of exactly what they are expected pay out of pocket, an amount called the expected family contribution.
Rachel Allen, the bursar for Bowdoin College in Maine, says installment plans can help families budget better throughout the semester by giving them an expected plan of payment.
“I just think if students or families are questioning what options are available to them, they definitely want to work with the school directly to see what they have available for resources,” Allen says.
Livingston says she left her money for her son’s college tuition in a high-yield savings account to earn interest and withdrew monthly to pay the tuition bill.
“If you’re able to work it out in your monthly budget and you’re able to make monthly payments for tuition,” she says, “then obviously that’s always better than taking on more debt.”
More from U.S. News
How to Pay for College Without Loans
Look for These Red Flags in a College’s Finances
College Student Housing: Should I Live On Campus or Off?
College Tuition Payment Plans: A Guide originally appeared on usnews.com
