Higher education is a fundamental part of life for many people. Whether it’s a long journey that leads to a PhD or a series of short certifications that support a wider career path, many of us rely on post-secondary study to propel us into the next stage of our lives and careers.
For the most part, higher education is something that we have to pay for out-of-pocket, either through savings or by supplementing with student loans. Here, we’ll explore how installment payments are transforming the landscape of post-secondary education, helping people reduce debt, and improving access to online or in-person study.
The Growing Cost of Education
Student loans are a central topic in the news and political spaces, and for good reason – as of 2023, student loan debt in the United States is $1.774 trillion.
Types of student loans
There are several different types of student loans available in the US, which fall within two categories: federal loans and private loans.
Federal student loans
Federal student loans are either subsidized (meaning students typically don’t have to pay interest) or unsubsidized, depending on financial need. There are a few different types of federal student loans, geared towards students or parents.
Overall, more than 90% of US student loan debt is federal and the average federal student loan debt balance for individuals is $37,717.
Private student loans
Private student loans are similar to personal loans in that they are based on credit history and have various interest rates attached to them, depending on individual circumstances.
For students who supplement with private loans, the total average balance could be as high as $40,505.
Concerns surrounding student loans
The staggering statistics attached to student loans tend to speak for themselves. While many US students were offered relief from loan repayments between 2020 and 2023, there is still $112 billion in default student loan payments, which equals over 5.1 million loans in the default stage.
As with any financial burden, the issues surrounding student loan debt are critical. High interest rates, missed payment penalties, and unforgiving payment schedules can put an immense amount of pressure on graduates.
Installment Payments for Higher Education
With tuition costs on the rise, and loan repayment strain in quick succession, it’s critical for educational institutions to offer students more flexible and sustainable options for paying for their tuition.
In a recent survey in collaboration with PYMNTS, we found that 38% of consumers would consider using BNPL installment payments for education and certifications.
The education sector is listening – installment payments are becoming a common option for both online and on-campus post-secondary education outlets. Schools may have an internal installment payment system set up, or they may work with a third-party installment payment platform to provide this option for students.
What do education installment plans cover?
The process varies depending on the institution. Installment plans may cover:
- Housing costs
- Student fees
Associated costs, such as textbooks, materials, and food are not usually included in an installment plan.
How do education installment payment plans work?
Again, the process will vary depending on the institution. Generally, education installment payment plans follow a basic installment payment plan structure in which tuition can be paid over a series of installments.
If they can’t afford to fund the entire installment plan, students can usually apply student loans or other funding towards their tuition and pay the remaining balance in installments, for a multi-payment solution.
Students (or their parents/guardians) will typically need to:
- Agree to a payment schedule, which either runs over 9-12 months or at set periods throughout the semester
- Pay an administrative fee for the installment plan (typically $30-$100)
- Provide bank or card details for payments to be debited
How do education installment plans differ from student loans?
The main difference between installment plans and student loans is the repayment timeline.
With a student loan, the student is borrowing money for their tuition and paying upfront, with the understanding that they’ll pay it back once they’ve completed their education. With education installment payments, students are paying off the cost of their tuition while actively studying.
There is also a difference in the overall cost of the payment solution. While installment plans will usually have a nominal fee attached, they don’t require a credit check or additional interest. There may be penalties for missed or late payments.
Most student loans carry interest, which means students will end up paying more for their tuition in the long term, compared to those who fund their education through an installment plan.
Advantages of Installment Payments in Education: Enrolment and Accessibility
Installment plans offer many long and short-term benefits to students and educational institutions.
Benefits for students:
- Access to further education without having to pay full tuition upfront
- Interest-free option that reduces the burden of student loans in the future
- Flexible option to fit their budget – can be combined with student loans, if needed
Benefits for educational institutions:
- Improve access to a wider student body, including students who may not traditionally be able to pay for tuition upfront or who don’t qualify for loans
- Appealing option that can lead to increased enrolment
- Differentiate from other institutions that don’t have flexible payment solutions
- Help reduce the overall load of student loan debt within wider society
How Installment Payments are Transforming the Education Finance Landscape
According to a Univstats report, an estimated 5,322 higher education institutions in the US accept tuition payment plans. The number of students who are choosing to fund their education in this way is also on the rise – a large US college reported that 15%-20% of students used a tuition installment plan in the 2021/22 semester.
With this growing number of institutions offering these options for students, we’ll no doubt see the landscape of student finances begin to shift. This will help to:
- Reduce the burden of student debt, for individuals and throughout the general economy
- Allow students to budget their finances in a healthier way, both during their time in education and once they’ve moved on
- Allow students (or parents/guardians) to manage their money better – rather than paying for tuition upfront, they can fund education through an installment plan and invest savings into other more profitable sources over time
- Open up the educational landscape and allow a more diverse range of students to enter into higher education
Ensuring Financial Responsibility With Installment Plans
Installment plans for education can provide greater flexibility for students. However, as with any financial decision, there are important things to consider before choosing to pay for tuition through an installment plan.
Educational institutions and installment plan providers have a responsibility to ensure they’re adhering to responsible lending practices, and students should ensure they’re borrowing responsibly by considering key factors:
- Affordability: Students and or parents/guardians must be sure they can keep up with the repayment schedule outlined in their installment plan agreement.
- Loan management: If part of the total tuition will be funded by a student loan, it’s important to find a sustainable option that won’t lead to financial hardship later on.
- Additional fees: Students should examine the installment plan agreement carefully to ensure there are no additional charges along the way that could lead to financial strain.
Installment plans allow students to achieve their higher education goals in a way that fits their budget and helps to prevent them from accumulating large amounts of student loan debt. For educational institutions, this means opening doors to more students from different backgrounds.
Learn about how Splitit supports educational platforms by allowing students to pay for tuition and programs through a flexible installment payment plan.