Why Payment Plans Matter
In this article, we’ll explore the upsides and downsides of university payment plans. We will also include tips on how to choose one that will best suit your financial needs and goals.
A college degree is one of the most valuable things you can have today. This is especially true in the United States, where high-paying job markets have become very competitive. However, getting one is very expensive, and the majority of Americans are thinking that they cannot afford it.
Here are important facts from the Education Data Initiative you should know about:
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- From 2010–2011 to 2022–2023, college tuition rose at an average rate of 3.63% per year.
- At public 4-year schools, tuition costs jumped by 36.7% between 2010 and 2023.
- After adjusting for inflation, college tuition has skyrocketed by 197.4% since 1963
The average cost of a bachelor’s degree (tuition alone) is $9,750 (in-state) and $28,386 (out-of-state). When you include other costs like housing, meal plans, and books and supplies, even a frugal student could spend an average of $38,270 per year.
Now, considering that the national average wage index is only $66,621.80, it’s understandable why many Americans choose not to pursue a college degree. Even those already enrolled in college choose to drop out due to rising costs.
But despite college costs, many are still determined to earn a college degree. On the bright side, there are several financial aid opportunities one can pursue, including:
- Scholarships
- Grants
- Work-study
- Tuition reimbursement
- Loans
Loans are often easier to apply and qualify for than the others. Yet, we do not suggest making it your first resort. Loans are loans—you’re required to pay them (often immediately after graduation with interests that come higher than the principal amount borrowed).
One of the best things you can do to ensure that the costs will not overwhelm you is to know about college tuition payment options. The main point of these options is to give students the chance to pay tuition in smaller installments over time. This arrangement makes a college education more affordable and accessible.
The best news? All university payment plans are interest-free!
The main benefit of university payment plans is flexibility. You have a bigger wiggle room on how you budget your money by choosing a term of tuition payment that will fit your income/financial goal. Some universities allow you to choose between monthly or quarterly. Other universities are even more flexible, offering per-semester payments.
Tuition payments also help you have a better cash flow since you won’t have to drain your bank account at the start of the school year. It is really a big plus if you are supporting a family, working a part-time job, receiving financial help in chunks, or juggling multiple expenses.
Lastly, it enhances your money management skills. When you are on a payment plan, you are obliged to stick to a schedule. There’s no room for skipping or forgetting. Those regular payments you’ll make will force you to stay on top of your budget and get used to budgeting for recurring expenses.
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- Are University Payment Plans Worth It?
- Breaking Down the Fine Print: Fees and Interest in University Payment Plans
- Federal Loans vs. Payment Plans: Which Should You Use First?
- Private Loans vs. University Payment Plans: What’s More Cost-Effective?
What Are University Payment Plans?
University payment plans are quite easy to understand. They allow enrolled college students to spread out tuition costs over time. It saves many students from going bankrupt at the beginning of the school year. It also allows them to spend money on other important things aside from tuition, like books, supplies, food, and more.
Other payment plans allow you to lock in tuition rates at current prices.
The bottom line is that these university payment plans are designed to ease the financial burden and help you keep your education on track.
There are different types of university payment plans. The three most commonly offered types today are:
- Monthly Tuition Installment Plan
- Tuition Prepayment Plan
- Third-Party Tuition Plan
Institutional tuition payment plans, unlike loans, don’t have interest fees. They do, however, usually charge for enrollment fees. Nevertheless, these fees are still smaller than interest fees from loans, running only between $15 and $52—prestigious and private universities sometimes charge more.
Monthly Tuition Installment Plans
Monthly tuition installment plans are the most common type offered by colleges and universities. This plan allows you to spread out tuition costs into smaller amounts monthly.
Pros:
- It allows for easier budgeting and cash flow management.
- You avoid large upfront costs.
- It may feature low or no interest (depending on the school).
- There is no credit check (usually).
Cons:
- You must commit to making payments on time.
- You may be asked to pay small administrative fees.
- Late payments could lead to penalties or account holds.
Tuition Prepayment Plans
Tuition prepayment plans can be heavy in the beginning. Yet, the future financial rewards are big!
A prepaid tuition plan lets you pay for college tuition at today’s rates, even if the student won’t attend for several years. It’s a type of 529 plan designed to help families save on future college costs by locking in current tuition prices—protecting you from the impact of rising tuition fees over time.
These plans are especially helpful for families confident their child will attend an in-state public college or university. Most prepaid tuition plans are run by individual states, which means they often come with residency requirements. Typically, the student (beneficiary) must live in the state offering the plan and attend an in-state school to use the benefits.
As of now, only eight states offer prepaid tuition programs. These states include:
- Florida: Lock in tuition prices; backed by the state; transferable; residency required only to buy.
- Massachusetts (U.Plan): Lock-in rates at 70+ MA colleges; refundable with interest if unused; flexible contributions.
- Michigan (MET): Use at MI public colleges; transferable or refundable; beneficiary must be an MI resident.
- Mississippi (MPACT): Covers tuition/fees at in-state schools; state-guaranteed; transferable; 8–10 year usage period.
- Nevada: Lock in tuition rates; use nationwide; tax-free earnings; flexible payment plans.
- Pennsylvania (PA 529 GSP): Choose tuition level; use at most US schools; covers tuition + other expenses.
- Texas: Buy tuition units for TX public schools; transferable value; keeps in-state status if moving.
- Washington (GET): Buy units equal to tuition value; tax-free growth/use; flexible school choice.
While beneficial, they are not without considerations. Here are a few tuition prepayment pros and cons you must read before deciding to go after this payment plan.
Pros:
- Locks in lower tuition rates
- Can save money long-term if tuition increases
- Reduces worry about future cost increases
Cons:
- Large upfront payment required
- Usually non-refundable or limited refund options
- May only apply to certain schools or in-state public universities
Third-Party Tuition Financing Options
Although the majority of US colleges and universities do offer tuition payment plans, some students may choose to use the services of outside providers. There are several third-party tuition financing. However, the most common include:
- FACTS Tuition Management
- ECSI Tuition Payment Plan (TPP)
- University Accounting Service (UAS)
- Nelnet Campus Commerce (formerly Tuition Management Systems)
The university requires written authorization on company letterhead or a payment voucher to recognize an anticipated third-party payment.
Third-party billing kicks off after the add/drop period ends. The university sends the bill straight to the company or organization covering your tuition and fees. If they don’t cover everything, it’s up to the student to pay the rest by the semester deadline.
Student grades don’t affect the agreement, and the bursar’s office can approve or deny any third-party payment plans.
Another thing to know is that these payment plans usually include interest. The fees will greatly depend on the third-party company/organization.
Are these like loans? They are similar in a way that they both accrue interest. However, they are not the same.
Whereas loans advance you money up front that you pay back later, third-party tuition payment plans usually split your tuition into smaller, monthly payments over the semester or year. You’re still paying the total amount, just in installments—and often with a service fee or low interest instead of the higher rates you’d get with standard student loans.
Pros:
- It can cover full tuition, housing, books, etc.
- It features longer repayment terms (5–15 years).
- It helps if you don’t qualify for in-house payment plans.
Cons:
- The interest can significantly increase the total cost.
- It requires a credit check (or co-signer).
- Your missed payments affect your credit score.
Comparing the Payment Plans: What to Consider
So, what would we suggest about how to pay for college? It depends. Just like pursuing a degree, choosing the best payment plan will largely depend on three things: your income, your future financial goals, and your comfort level of risk and debt.
The first thing you need to know is if the payment plan has interest. When the college or university provides it, there is usually none. However, if a third party provides it, 9/10 you would have to pay for interest.
The next thing you must look into is the fees involved. We have already mentioned enrollment fees, but there are usually more. Some providers also charge for setup or administrative fees.
Also, ask about the flexibility of the payment plans. Can you change the payment amount or defer payments if needed?
Lastly, consider your family income when looking for affordable ways to pay for college. A higher income might allow you to pay upfront or choose a larger installment option.
While we cannot tell you which of the three plans is best for you, here’s a simple guide to give you an idea:
- If you or your family have a steady income, we suggest choosing a monthly installment plan.
- If you have already saved money, consider tuition prepayment plans. This is actually a very smart move, especially since tuition costs at public universities rise an average of 2.64% each year.
- If flexibility is a bigger deal for you, you might have to resort to third-party tuition financing. Just see to it that the provider has low interest rates and fees.
This college payment plan comparison is not a one-size-fits-all, but it should give you a good starting point.
Questions to Ask Before Choosing a Plan
Before you commit to a tuition payment plan, be sure that you ask these questions:
Does the plan charge interest or fees?
Know that some plans (especially those offered by institutions) are usually interest-free. Yet, there’s no harm in clarifying things. If you’re planning a third-party provider, be sure that you read cover to cover.
What happens if you miss a payment?
While institutions do not apply interest fees, there are surely late fees when you miss a payment. And, in most cases, providers can hold your student account, which can impact your enrollment status.
Can you switch plans later?
Life circumstances can change at any moment, so it is very important to ask how flexible the payment plan is. Ask if you’re allowed to switch your plan if your finances change or if you find another plan with better terms.
Final Thoughts: Making the Best Choice for You
The golden question: “Is paying for college without loans possible?” Well, yes, if you’re smart about your decisions. But considering today’s increasing costs, it could be hard to graduate without debts (unless you’re from a wealthy family).
The only thing you can do is minimize the amount you have to borrow. In addition to applying for scholarships and grants, knowing which plan best suits you could help you manage costs more effectively.
We urge you to talk to financial aid offices. Each college/university has a designated person to enlighten you about payment plans. They can even give you tailored college cost planning tips based on your situation.
Here are a few more useful websites to begin your search: