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  • 4m.
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    3 Ways You Can Close Your Tuition Gap

    With college costs rising, many people are finding different ways to cover tuition—including installment plans, alternative loans, and credit cards. These options can close a tuition gap, but each comes with pros and cons.
    Updated: March 1, 2018

    What You'll Learn

    • How installment plans split your tuition bills into monthly payments.
    • Why using the "right" credit card (really) may make sense.
    • When you should turn to alternative, or private, student loans.
    man jumping off rock

    In 2017–2018, the total charges (tuition and fees, room and board) at 4-year private nonprofit colleges averaged $46,950 — a 13% increase since 2010–2011. Total charges at in-state public colleges are also on the rise. Over the same time frame, these costs have gone up by 12.5%, to $20,770.

    So, if you're trying to figure out how to cover these costs, you're not alone. However, you're also not without options to help you achieve your dream. The following three methods can help students and their families close a tuition gap, but they have drawbacks you'll want to pay attention to.

    1. Tuition Payment Plans

    These short-term installment plans split college bills into equal monthly payments—typically over 10 months to align with the school year. Most let you set up automatic payment from your bank account to pay the monthly bills.

    So, how do these work? Well, if yearly tuition is $15,000 and you go with an installment plan, you'll pay $1,500 a month for 10 months. Now, $1,500 a month is no small chunk of change, but for many people, it's easier to make those payments than to come up with the full $15,000 all at once.

    Also, keep in mind that you don't need to pay the full balance with the payment plan. If you and your family can afford to pay just $500 per month, you can still do that with a payment plan to avoid borrowing that amount and accruing interest on a loan.

    Tuition payment plans tend to appeal to parents. That's because these plans allow them to avoid making huge, one-time withdrawals from their savings. That way, they can earn interest on what’s left in the bank until they have to part with it to help with their other financial goals.

    Most of these plans are essentially interest free, but some have fees or finance charges that are less than $100. Be sure to ask about any costs before committing to a tuition payment plan.

    Another thing to be aware of: If you fall behind on your payments, your school could block you from registering for the next semester. The bottom line, though, is that if you can afford the monthly payments, a tuition installment could be right for you.

    2. Credit Cards

    Yep, you read right. An increasing number of people use credit cards to pay college tuition. But before you reach for your wallet, let's look at this option a little more thoroughly.

    First, you need to have a credit limit that allows you to put all of that tuition on your card. That means this option is generally more applicable to parents than students. If you're like most college-aged people, you probably don't have that kind of credit.

    Second, you don't want to put a tuition bill on just any old card. You want to be sure to use a card with a 0% promotional interest rate that lasts long enough to pay off the debt before the rate spikes.

    One perk of using a credit card (besides keeping you in school) is that the cardholder could earn rewards points.A potential downside, however, is that not all schools accept credit cards for tuition payments. And in some cases, those that do may charge a fee of 2% to 3%—negating any cash-back reward you might get.

    3. Alternative Loan Sources

    Often referred to as private student loans, these are exactly what their name says: alternatives to loans you get from the government, such as Stafford loans and Parent PLUS loans.

    It's best to apply for alternative loans only after you've exhausted all your other funding options, including scholarships, part-time work, and any federal loans available to you. That's because alternative loans typically lack the repayment benefits of some federal loans—like fixed interest rates, different payment plans, and loan forgiveness. So, these loans can cost you more in the long run.

    You should be certain to compare fees, interest rates, repayment terms, and benefits when shopping for an alternative loan. You can look at different lending sources as well. Just remember that high fees result in more overall additions to your loan total.

    Actualizado: 1 marzo 2018
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