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What Is a Tuition Payment Plan?

As the cost of college continues to rise, tuition payment plans have become a popular alternative to taking out loans. If you are struggling to pay off your entire tuition at the beginning of the semester, a tuition payment plan may just be what you are looking for.

How do tuition payment plans work?

Tuition payment plans divide tuition fees into periodic payments to lessen the burden of paying up-front. If you choose a tuition payment plan, you’ll typically make your payments monthly. Usually, they’ll be spread out over the course of a year. For many families, this monthly bill is more affordable than one big tuition bill.

Tuition repayment plans typically only charge a small fee which rarely exceeds $200. However, the terms of a tuition payment plan can vary. If you are considering a tuition repayment plan, research the specifics of the plan being offered. Doing so ensures that you can afford to pay it back on schedule and that the fees are reasonable.

Tuition repayment plans are offered on a college-by-college basis. If you are interested in a plan, reach out to your school’s financial aid office to get information on the options available to you. Some schools run their own tuition repayment plans while others contract them out.

Related: How much student loan debt is too much?

How do tuition payment plans compare to loans?

Because tuition payment plans don’t charge interest, you’ll end up paying back a much lower sum than if you took out loans. If you took out a tuition payment plan with a $100 fee for $20,000 of tuition, you would repay $20,100 at the end of the year. In contrast, a student who took out a 10-year loan with an interest rate of 6% would end up repaying $26,645.

But tuition payment plans have their disadvantages. You will have much less time to pay back your tuition. While loans are typically repaid over a period of 10 years, tuition repayment plans are usually repaid in one year.

Tuition repayment plans also do not offer the same forgiveness plans that federal student loans do. Federal loans can be forgiven for long periods of public service, and they offer flexible repayment plans. Plans include income-driven repayment and deferment.

Related: How to apply for student loans: federal and private

Using tuition repayment plans with student loans

Remember, it is possible to take out a tuition repayment plan and loans simultaneously. Because tuition repayment plans are less expensive than loans, you’ll want to use a repayment program for as much as you can pay back in the short-term. If your household won’t earn enough to repay your entire tuition that semester, you can use loans to fill the gap.

Let’s say your tuition is $15,000, but you will only be able to pay $1,000 per month towards a tuition repayment program. You can take out $3,000 in loans, which will not enter repayment until after you graduate. This spreads out your payments over a longer period of time and minimizes the interest you’ll have to pay.

Read more: Best student loan repayment plans

The bottom line 

College tuition payment plans are a great tool to divide your tuition into more manageable chunks. Keep in mind that they are very short-term loans. They can make college more affordable by reducing your interest payments. But make sure not to bite off more than you can chew! Make sure that you can make those monthly payments. Also, consider taking out loans to complement the plan if you are stretched too thin financially.

Also read: Everything you need to know about Federal Stafford Loans

Frequently asked questions about tuition payment plans

How do tuition payment plans compare to income share agreements?

Tuition payment plans are a shorter-term loan than income share agreements. Additionally, your monthly payments for income share agreements are determined by your income level. On the other hand, tuition payment plans have repayment terms which are agreed upon beforehand. 

What are the alternatives to tuition payment plans?

Your alternatives to tuition payment plans will vary based on your institution and your financial situation. Generally, the alternatives include taking out loans or paying up-front. You can also fund your education with private and federal grants and scholarships. Some institutions also offer other alternative financing, such as income share agreements and tuition deferment. These are most common in college alternative programs such as coding bootcamps and certificate programs.