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Updated on Friday, September 30, 2016
If you’re a student who is short on cash, but you want to avoid student loans, you might be considering a tuition installment plan, but before you enroll, read the plan agreement and do a bit of math. In most cases, the tuition installment plan is a bad deal for you.
What is a tuition installment plan?
A tuition installment plan allows you to pay your tuition in monthly payments that last twelve months or less (sometimes as few as three installments). You can expect to pay an enrollment fee, but you won’t pay interest. Universities limit the amount of money you can pay through tuition installment plans, so the remainder of your tuition bill needs to be covered in cash or by student loans.
What are the installment plan fees?
Enrollment fees vary by university, but you can expect to pay anywhere from $25-$100 to enroll in a tuition payment plan. For example, Virginia Commonwealth University charges a nonrefundable $25 application fee to enroll in the tuition installment plan, while Howard University charges a $45 fee, and Rutgers charges a $60 fee for an annual plan or $50 per semester. If you pay your installment late or incompletely, you can expect to pay a late fee of $10-$35 per installment.
What happens if I don’t pay?
If you don’t pay your installment payments, the university will roll your payments into an “emergency” loan where interest begins accruing immediately, and payments are immediately due. You may be able to take out student loans to pay off the emergency loan, but you may be stuck with the loan going forward.
Once your tuition installment plan converts to a loan, creditors view it like any other loan. This means that failing to pay it will lead to credit problems. Additionally, your school may put a hold on your credentials or not allow you to enroll in classes until the loan is current.
Information about what happens if you don’t pay will be available in an agreement that you need to sign prior to enrollment. Read the agreement prior to enrolling in a tuition installment plan.
Will Tuition Installment Plans save you money?
You won’t save much money paying through a tuition installment plan compared with subsidized student loans. Sallie Mae offers a calculator that calculates the amount of interest you will accrue on a student loan if the loan goes completely unpaid. Compare the accrued interest to the tuition installment plan enrollment fee to see if you have the potential to save money.
Tuition installment plans sound like interest free loans, but they tend to be a bad deal for students. You’re locked into payments during school, and you save little (or nothing) compared to subsidized student loans. Since enrolling in tuition installment plans requires filling out a FAFSA, you won’t save time enrolling in TIP(s) vs taking out loans.
When should I consider Tuition Installment Plans?
Tuition installment plans have a useful psychological value. If a required payment keeps you from wasting money or from taking on debt for lifestyle purchases, then you should consider it whether or not you save money compared to student loans. If you have a moral or religious objection to debt, installment plans allow you to cover a small gap without interest bearing debt (but be aware that if you fail to pay, you’re taking on a loan).