Options for Tuition Payment Plans
The goal of entering college is to graduate from college. Yet dropping out of college has become a reality for many Americans. The New York Times, reporting on the unfortunate phenomena of dropping out of college, notes that while more than 70 percent of Americans enroll in four-year colleges, less than 66 percent graduate. On the international scale, these statistics are even more worrisome as Hungary is the only country with a worse dropout rate than the U.S.
While there may be many different factors at play when a student drops out of college, proper financial planning can help students avoid the possibility of dropping out of college based on shortcomings in finances.
Payment Plans Can Help You Stay in School
As there are no diplomas issued for almost completing a degree, the decision to enter college should include a commitment to finish. Any debt incurred before dropping out will need to be repaid, which the student will have to begin doing without having the higher earnings that come with a degree. While it is well known that some of today’s greatest entrepreneurs, like Bill Gates and Mark Zuckerberg, dropped out of college, it is best to follow a well-established path when planning for college rather than hoping to be the exception.
One helpful rule is to create the best and most viable plan for financing college, stick to that plan, and be responsive to any wrinkles that develop. As part of sound planning for college, tuition payment plans can be utilized to ensure a student completes her degree.
Upon acceptance to college, the school’s financial aid office will prepare a unique financial aid package for the admitted student. Financial aid may be based on need, merit, or a combination of both. A highly attractive financial aid package is one of the most effective ways for schools to encourage the most coveted students to matriculate (such as students in the highest percentile of the SAT, with outstanding GPAs, or with a history of athletic success and/or stellar extracurricular activities).
However, short of a full scholarship, including room and board and a living stipend, there will likely be a gap between a college scholarships and the full cost of attending the school. In fact, as noted in the book Secret’s to Winning a Scholarship, by Mark Kantrowitz, only 0.3 percent of college applicants are awarded full scholarships. Even if a student is an extraordinary candidate, there are never any guarantees in the scholarship award process, and for this reason, students are best advised to apply to several schools.
According to U.S. News, most colleges will include federal loans in their aid packages, whereas schools with the very most competitive admissions standards (such as Yale University, Smith College, and Pomona College) will often provide financial aid that does not include loans. In other words, if a student can make it through the extremely competitive admissions process at the most elite schools, they will likely receive a favorable aid package. But as the majority of students will not receive seats at the most coveted schools, they are likely to receive mixed financial aid packages. According to the Free Application for Federal Student Aid (FAFSA), which is federally administered, the government provides over $150 billion in aid to students each year. Students can expect that their financial aid packages to include the following types of federal and state aid:
Although there are various forms of assistance, there will likely still be a gap between the total amount of financial aid and the total cost of attending college per year. The Expected Family Contribution (EFC) is used to fill in this gap. It is possible for an EFC to be zero, but this will only be the case for low-income families. The term EFC does not necessarily reflect reality as many families cannot actually afford the estimated contribution amount. Further, according to a U.S. News article covering this topic, many families do not know their EFC until after their child has already applied to college and may experience a shock when they see an unexpectedly high figure. In fact, a college’s EFC calculation does not take into account household debt, which can certainly contribute to surprise over the EFC amount. For this reason, it is advisable to calculate the EFC before the student applies to college.
Calculating the EFC in advance of applying to colleges is also helpful because it can provide some guidance in the selection process. The total cost of attendance minus EFC will provide an indication of how much financial aid will be needed. The higher the need for financial aid, the more likely it is that the school may be out of reach financially. Families are well advised to also research the financial aid trends at the schools their children are considering as some schools are notably more generous than others in their financial aid packages.
The EFC is, of course, only an estimate and does not purport to be an amount the student’s family can realistically afford. For this reason, it is particularly important for the student’s family to figure out a realistic contribution amount and for the student to matriculate at a college that is within this budget. Selecting an affordable college is one of the best steps that can be taken toward not only starting college but also completing it.
It is also important to note that EFC may be a misnomer for another reason; a student’s family may not even be a part of the college planning process. A student may not be receiving any assistance from family, and although the student can report this information to the college, the EFC will not likely be changed. It will then be the student’s responsibility, through careful planning, to close this gap or select a more cost-efficient school.
As the academic course load at colleges runs on a semester basis, colleges bill per semester or even per college year. However, colleges understand the financial burden of an advance payment for an entire semester or year and many offer installment plans. Installment plans can be instrumental to successfully paying the EFC.
In essence, a tuition installment plan is like an interest-free loan because the student’s family has the benefit and use of the funds that are not paid to the school in a lump sum. Although the funds should ideally be earmarked exclusively for tuition payments, since the payments are made in installments, the student’s family can potentially invest the funds and earn interest returns. Whether the student’s family opts for an installment plan as an investment strategy or simply because funds are not available to pay the full amount, these plans can prove very helpful.
According to Salt Money, 90 percent of colleges offer tuition installment plans, and families should expect these plans to have the following features:
- A maximum payment term of 12 months with an option for a 3-month plan (i.e., paying for the semester) or a 10-month plan (i.e. paying for the entire academic)
- Equal payment amounts due each month
- Initiation and administration fees that are usually less than $100
- The option for direct debit
- The college will administer the payment plan or contract with a third-party administrator
- If payment falls delinquent, the student will not be permitted to register for the next semester until the account is brought current
Installment plans are a helpful resource to ease any financial stress the EFC presents. To make the most out of this opportunity, it is advisable to speak directly with the college and fully review the terms of the installment plan before entering into it. It is a good idea to learn of all fees associated with the installment agreement, and all repercussions in the unfortunate event of any delinquency. Learning about installment plans is yet another way to be savvy in creating a sound college financing plan. The more you know about paying for college, the better you can plan and the greater the likelihood that your college goals will become a reality ending with a degree.