Payment Plans–Another Way to Pay

There are many ways people pay for their student to attend college. The first course is personal funds from the student and their family. Many of us also make use of federal financial aid sources, such as Pell Grants, both unsubsidized and subsidized student loans and student employment. For most people, paying all of our student’s college expenses out of pocket, particularly for residential colleges and universities, just isn’t in the cards. One often overlooked method for paying for college are payment plans.

Payment plans are very much like paying for something overtime, like layaways at a department store, and are essentially interest free or interest minimal loans. Why would students and their families choose a payment plan over regular student loans?

First, not all families that choose payment plans do so instead of loans. Most chose it in addition to loans or grants, because they don’t want their student to graduate with excessive debt. Payment plans permit families to plan their expenditures so they take care of any loan debt service while the student is in college, but keep that total loan burden as low as possible by paying something toward the bill every month.

Colleges and universities have all kinds of plans they use,and many use outside companies to manage their payment plans. Some even offer more than one payment plan option. Keep in mind that there are often set up fees for payment plans, or additional charges for using a credit card for the payments. Just like buying a car, look carefully at the terms before you sign up.

Here are a few more suggestions from collegedata.com

Deferred College Payment Plans are Like No-Interest Loans

Deferred payment plans, also known as installment plans, are a convenience to help you manage college expenses. Instead of paying your college bill for a semester or quarter at once, you pay in monthly installments. Your bill, which includes charges for tuition, and room and board if living on campus, must be paid off by the end of that academic period. Most plans do not charge interest if you pay by check or direct deposit. However, like private loans, you must have a good credit history to qualify for them.

Sign Up for Payment Deferment Well Before Classes Start

Don’t show up on the first day of classes expecting to automatically qualify for an installment plan. The first payment of an installment plan is normally due at registration and may be the largest. If you enroll at a college that does not offer such a plan, its financial aid office may be able to refer you to a private commercial tuition management company that does.

Collegedata.com also recommends that students and parents be aware of additional costs, such as installment fees. One reason I recommend payment plans is it builds discipline for both students and their families to make the payment rather than relying on loans.

USNews and World Report also has suggestions about payment plans. For one thing, the interest charge on payment plans is often less than that for unsubsidized or Parent PLUS loans. Further, they suggest that you

Only Pick a Payment Plan That stays Within Budget

There is a temptation to choose a payment plan because of the obvious benefits named above. But the last thing you want to do is be so stressed by the payment amounts and not make them, running the risk of having the student being removed from school. When our daughter started college, we took out more loans the first year because we were stressed about our ability to make the monthly payments for her private university. But once we were sure we could do it, we switched to the payment plan for her second year, and hope that our daughter will graduate debt-free. We only came to this conclusion after taking the loan route for a year and looking carefully at our expenses over that entire year to know we could do it.

Using a Payment Plan is Very Much a Family Decision

Be sure to involve your student in all of these decisions.No one wants to take on excessive debt, but students also don’t want their families worrying every month about how to make their tuition payment. So plan carefully, ask lots of questions, and be realistic about what you can afford.

In the end, you may find payment plans a helpful alternative to some loans.