Scholarships. Grants. Loans. You’ve heard all those terms before to pay for college.
Here’s one you may not have thought of: payment plans.
When you receive your financial aid award letter from your college, you’ll see the scholarships and grants you’ve been awarded. You’ll see how much more you have to pay for college, and you’ll likely be offered loans to cover that amount.
But hold your horses there, cowboy. Instead of immediately accepting the loans, think about trying a payment plan instead.
What’s a payment plan?
A payment plan takes the amount of money you have to pay for college and divides it into monthly payments. That makes it so you don’t have to pay the entire amount in a lump sum at the beginning of each semester.
How does it work?
After all your “free” financial aid (grants and scholarships) is accounted for, let’s say you still owe the college $10,000 for the year.
Now, $10,000 is a big lump to shell out all at once. And after looking at all those zeros, you might be tempted to take out a loan for the full amount.
But if your college offers a payment plan over a year, that’s about $830 a month—a much more manageable amount.
Even if you can afford just a few hundred dollars a month toward a payment plan, you can still reduce the amount you have to borrow.
What’s the benefit?
The best-case scenario from using a payment plan?
“No loan debt,” says Lynn M. Robinson, executive director of student financial services for Johnson & Wales University (jwu.edu).
That means, after graduation, you have more money to buy a car, wardrobe, apartment—whatever—and less money you have to shell out to pay back student loans.
“It does make it a little tighter when you’re in school,” says Steven Dodd, president of Key Education Resources (key.com/educate).
“It is easier to make no payment today and borrow. But it’s not a good way to manage your money. Instead, what we encourage people to do is to look at what you can pay out of current income, consider what you can pay in savings, and stretch it out over the course of the academic year. You’re paying as you go. There’s no interest.”
Who offers payment plans?
Most colleges and universities offer them. Haven’t heard about them from your prospective school? Just ask an admissions or financial aid officer.
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Total you owe the college
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Amount you pay through a payment plan
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Total you have to borrow
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$10,000
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$0
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$10,000
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$10,000
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$400/month
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$5,200
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$10,000
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$830/month
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$0
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