Should You Buy Education In Installments? Beware of Risks, Watchdog Says

College students studying in a library

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If paying for college in interest-free installments seems like an appealing alternative to traditional student loans, the government’s consumer watchdog has a warning: Read the fine print carefully.

Key Takeaways

  • Many colleges now offer "tuition payment plans" as an interest-free alternative to student loans, but they come with many risks for students, the Consumer Financial Protection Bureau says.
  • Some colleges will withhold transcripts, cut off meal plans, or kick people out of classes if they fall behind on payments.
  • Like similar buy-now-pay-later plans, tuition repayment plans can carry heavy fees for late and missed payments.

“Tuition payment plans,” an increasingly popular way to pay for college, come with some significant risks for students, The Consumer Financial Protection Bureau warned in a report Thursday. Similar to buy-now-pay-later plans for consumer purchases, tuition payment plans offered by colleges allow borrowers to repay in interest-free installments. Like those plans, however, missing a payment or being late can lead to severe penalties.              

“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 in a statement. “Colleges and universities should take a hard look at their repayment plans and avoid subjecting borrowers to high fees or coercive debt collection practices.”

The vast majority of colleges now offer tuition payment plans, with 98% of Title-IV institutions offering one and up to 3.9 million students using one each term, the CFPB estimated.

Many of the programs came with a litany of fees and legal tripwires, the CFPB said. Those included enrollment fees averaging $37 and as high as $250, as well as late fees averaging $46, with one school charging $300 for the first late payment.

Some schools were also aggressive about collecting debts, withholding transcripts, kicking students out of classes, and removing them from meal plans if they fell behind on their payments.

The regulator’s report echoed findings last year by a consumer group, which highlighted tuition repayment plans as a form of “shadow student debt.” Colleges, often non-accredited or low-quality programs, were offering courses on outdoor survival, reiki, and wigmaking among other things, paid for with non-traditional financing, the Student Borrower Protection Center said in a 2022 report.

It’s possible to get into financial trouble with traditional student loans, especially when borrowers are unable to keep up with interest payments. However, borrowers with federally-backed loans have options not available to BNPL users, including income-driven repayment plans, forbearance, and other protections. 

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  1. Consumer Financial Protection Bureau. "Tuition Payment Plans in Higher Education."

  2. Consumer Financial Protection Bureau. "CFPB Report Finds College Tuition Payment Plans Can Put Student Borrowers at Risk."

  3. Student Borrower Protection Center. "Point of Sale Fail: How a Flood of “Buy Now, Pay Later” Student Debt is Putting Millions at Risk."

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