Tuition Payment Plans for College: Pros and Cons

If you’re worried about producing large sums of cash to pay for college, there’s a simple, available way to make payments easier — a tuition payment plan. This option is offered by many public and private schools, allowing you to pay your tuition in installments, rather than in one lump sum.

Using a payment plan could help you stay within your budget and save money during college, as these plans don’t charge interest like loans do. At the same time, this option isn’t without its downside, including a warning from the government about some bad practices.

Here’s a look at the pros and cons of using a school’s tuition payment plan, as well as where to find one.

Pros of using a tuition payment plan

Some schools offer a monthly payment plan over nine to 12 months, while others allow you to make payments once or twice during each semester. There are even schools, like New York University, that offer multiple types of plans.

The amount you pay with a tuition payment plan is typically based on what you owe for tuition after factoring in financial aid, grants and work-study funds.

Tuition payment plans allow parents and students to avoid having to make large payments annually or each semester, which can be tough on household budgets. Most schools define the rules of their own plans, but they may use an outside management company, like FACTS, to handle the payments.

Example of how a plan may work

Let’s say you owe $5,000 for tuition after all your financial aid has been applied. You decide to spread the cost out over 10 months, resulting in a payment of $500 per month. That’s still a hefty bill, but could be a lot more manageable than putting down $5,000 all at once, depending on your budget.

Not only do tuition payment plans let you pay your tuition costs over time, but they usually charge minimal fees for doing so — unlike student loans, which can come with an origination fee plus interest charges.

In addition, signing up for a tuition payment plan doesn’t call for a credit check and interest doesn’t apply. Speak with your college’s financial aid or bursar’s office to learn about your payment options.

A tuition payment plan could mean less student debt

Being on a tuition payment plan could mean taking out fewer student loans — if any — meaning you could save a lot of money on student loan interest.

“Very few universities charge interest, which adds up to a substantial amount of savings as parent loans carry high interest rates,” said Elisia Howard, owner and founder of college consulting company College Insight.

“I usually recommend [families] pay what they can using a tuition payment plan and take out the rest in loans, which can be paid over the course of years,” she added.

Let’s consider our previous example: You owe $5,000 in tuition. After looking at your budget, you can only afford to pay $250 each month toward tuition. You pay $2,500 using a 10-month tuition payment plan and take out a $2,500 loan to cover the rest. Instead of taking out a $5,000 loan, you’ve cut your student loan debt in half. By mixing and matching your methods for paying tuition, you’ve saved money on interest.

Carol Suter, assistant vice president of student financial services at Southern New Hampshire University, echoed Howard’s advice to be strategic about paying for college: “If funding is seen as a strategy, where a plan using multiple resources is utilized, it could be possible to save money over the long term.”

When it comes to paying for college, take a look at all your payment options. Then, consider using a few different approaches to minimize the amount you take out in loans.

Cons of using a tuition payment plan

Though tuition payment plans can offer an affordable way to pay for school, they also come with a few possible drawbacks.

Some payment management companies used by schools charge a fee to enroll in the plan, while others charge a fee if you miss a payment: For example, tuition management company FACTS charges $30 if it can’t collect payment due to insufficient funds. Your college could charge you an additional fee, too.

The Consumer Financial Protection Bureau issued a report in September 2023 looking at tuition payment plans at about 450 schools. The CFPB said the report “finds that many plans have inconsistent disclosures and confusing repayment terms, putting students at risk of missing payments, incurring late fees, and accumulating debt.”

It also said some schools had withheld transcripts in order to collect debt, which is “potentially illegal.” 

You still owe the college money, even on a plan

Tuition payment plans also have a limited scope — they usually don’t cover costs beyond tuition, so you’ll still be responsible for the costs of books, school supplies and personal expenses. Plus, depending on the school, housing and food costs might not be eligible for a payment plan either. According to the College Board’s most recent data, the average student at a four-year public college pays $1,240 each year for books and supplies.

You’ll need to save up to cover these essential costs of attending college. If you can’t pay these extra costs out of pocket or with scholarship money, you might need to cover them with student loans.

Plus, some schools, like the University of Washington in Seattle, don’t even offer payment plans.

Overall, there may not be a ton of downsides to tuition payment plans — but before signing up for one, you should learn about its potential costs and limitations.

Speak with the financial aid office about your options

Each individual college has its own policy for tuition payment plans. If you’re interested, ask your school’s financial aid office about your options.

As you research and apply to schools, make sure to consider the cost of tuition. By understanding the costs and how to cover them, you can make the best choice for your educational future.