Pay-As-You-Go Education Increasing in Popularity – But It’s Not for Everyone
Posted By Donna Fuscaldo on June 24, 2015 at 12:34 pm
With student loan debt at record highs, many incoming students and their families are trying to find ways to forgo debt altogether. Growing in popularity is the college installment plan, but it’s not for everyone.
With student loan debt at an all-time high of more than $1.2 trillion and college costs rising every year, it’s not surprising that incoming college students don’t want to leave school saddled with long-term debt.
An increasingly popular way to cover a portion of their education is via installment payments. Schools across the country are offering students the ability to spread the cost of a semester or year of college out over a number of months in an effort to keep costs in check and enrollment up. Students who can front the cost pay a nominal fee to participate, and usually get to make the payments interest-free.
“If you can afford to pay tuition and fees but maybe you can’t afford to pay it all at once,it’s the best option out there,” says Betsy Mayotte, director of regulatory compliance for American Student Assistance. “Very rarely is there any interest charge on an installment plan, and if there are any fees they are very minimal.”
In effect at the University System of Georgia
The popularity of installment plans is borne partly out of the recession of 2008-2009. Many people found themselves out of work or struggling to pay the bills. Installment plans were seen as a way to alleviate some of the burden of coming up with an entire semester or year’s tuition at once. And while the economy has been on the mend, installment plans are still a favorite among many students and schools around the country.
Just last month, the University System of Georgia announced it would expand its installment plan program in the fall. In 2013, the system began a pilot program at Georgia Tech, which will now be opened up to include more schools. Under the University System of Georgia program, students make one payment before the semester begins, another a few weeks into the start of school, and a final payment midway through the semester. Student financial aid eligibility isn’t impacted by participation in the program, but any financial aid is applied to the balance first. Since the pilot began in 2013, the number of students taking advantage of it has jumped to 1,357 from 966. The average amount deferred was $4,200 in 2013 and increased to $4,627 in its latest figures.
The structure of the payment plans will vary from one school to the next. While the University System of Georgia makes students make payments three times in a semester other schools have plans that students pay monthly.
Installment plans aren’t for everyone
An installment plan may seem like the answer to taking on less debt, but it’s not for everyone – and in some cases, it can do more harm than good. “An installment plan is a reasonable alternative to long-term debt, because it doesn’t charge interest and even with the upfront fee it’s a lot less expensive than borrowing,” says Mark Kantrowitz, senior vice president & publisher of Edvisors.com. “But the concept of ‘work your way through college’ isn’t reasonable for a four year degree.”
According to Kantrowitz, some students enter college assuming they can work a forty hour job, and that by using financial aid and installment payments they can cover their tuition and expenses without taking on any debt. And while it may work for a few, he says it’s a very small minority who will be able to successfully hold down a full-time job and complete a four year degree. “If you are working 40 or more hours a week, you are half as likely to graduate as someone working twelve hours or less a week,” says Kantrowitz. What’s more, he says, the number one reason people drop out of college – aside from money – is the conflict between school, work and home.
A more realistic work schedule, says Kantrowitz, is putting in around twelve hours a week. But if working part-time isn’t going to provide you with enough money to make installment payments, an alternative funding source, like student loans, may be a better choice. “You have to plan on having some debt,” says Kantrowitz. “You need to make sure the amount of debt is reasonable and affordable.”
Whether or not an installment plan is right for you also comes down to your financial situation. After all, the last thing you want is to agree to an installment plan that you can’t make payments on. In panic mode, you may end up taking out a high-interest loan to cover the payments, creating a worse debt situation for yourself. A better strategy, says Mayotte, is to use a little bit of everything to cover the cost of a college education, rather than trying to make an installment plan alone work. “Your tuition bill may be $10,000, but if you can only afford to pay $5,000, you can use an installment plan for that $5,000 and take out a loan for the rest,” she says.”A lot will depend on what the tuition bill is.”
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