Tuition repayment plans may seem like a good way to spread out the cost of a college education, but they may come with big risks for students, a new Consumer Financial Protection Bureau (CFPB) report warned.
Tuition payment plans offered by nearly 450 institutions allow college students to break up their tuition into interest-free installments, but they may put students at increased risk of accumulating debt, the CFPB said in the report.
Nearly 4 million students set up some form of tuition payment arrangement with their university each term, the CFPB said. The plans are typically marketed as an alternative to student loans and are usually interest-free.
However, the universities, which act as lenders, commonly tack on other fees to the plans. When these fees are added on top of the cost of the tuition balance they can create a high price of credit.
"Tuition payment plans offered by schools may look like a good option, but this report shows student borrowers can end up paying high fees, be forced to sign away their legal rights, or even have their transcript withheld by their school," CFPB Director Rohit Chopra said. "Colleges and universities should take a hard look at their repayment plans and avoid subjecting borrowers to high fees or coercive debt collection practices."
If you're concerned about college costs and are considering a private student loan, it can help to shop around for the best rate. You can visit Credible to learn more about private student loan options and get personalized rates from multiple lenders without dinging your credit score.
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The extra fees colleges and universities charge for using the monthly installment plans can cause students to rack up a significant amount of debt. Some students face annual percentage rates as high as 237% when the borrowed amount is low and the enrollment fee is high, the CFPB said.
Roughly 89% of schools charged an enrollment or set-up fee, averaging $37 but was sometimes as high as $250; 60% charged a non-sufficient payment fee averaging $29 per instance, and 44% charge late fees at an average cost of $46 per late payment, according to the report.
In addition to the extra fees, at some schools, students who miss payments on loans can be kicked off of their meal plans and potentially be removed from classes, the report said. Moreover, many universities and colleges withhold students' transcripts as a debt collection tool. This potentially illegal practice could have severe consequences for students trying to begin their careers or finish their education.
If scholarships, grants, college savings, and federal aid don't cover all your education costs and you are considering a private student loan, comparing your options can help you plan better. Credible can help you compare fixed and variable-rate private loan options from multiple lenders.
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Families paying for college are relying on federal student loans more than they have in recent years, a recent College Ave survey said. Overall, 46% of respondents said they planned to use federal student loans to finance a college degree, a 3% increase from 2019.
Moreover, respondents who planned to use private student loans jumped to 20% this year, up from 12% in 2019. However, dependence on merit scholarships declined, with 51% saying they would rely on them compared to 64% four years ago. Families also planned to rely less on parents' savings, with 40% saying they put away money to fund college compared to 50% in 2019.
If you hold private student loans, you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.
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