Making Sense of Tuition Payment Plans: An Interview with Craig Lockwood

With recent SLA Flash survey results indicating that over 54% of financial aid administrators recommend that students and families consider tuition payment plans, I thought it was time to learn more about these programs.  Thanks to Craig Lockwood of Key Education Resources (parent company of Tuition Management Systems) who spent some time with me last month to shed some light on these programs.  

Here is an edited transcript of our discussion:

Question:  What are key points that students and families should know about tuition payment plans as they consider various options to pay for college? 

Answer:  Here are a few points that families should know about tuition payment plans:

• Tuition payment plans are NOT Loans.  There is no interest cost incurred to participate in these plans.  Rather they are plans to allow families to budget college costs over a 10-12 month period. 
• Everyone can qualify to participate in a plan.
• No school certification is required.  
• These plans are effective tools to use current income to minimize debt as tuition payment plans allow families to pay some or all of their education costs. 

 

Question:  Can you discuss the mechanics behind a tuition payment plan (i.e. how do they work?)

Answer:  In simple terms, these plans allow you to stretch the annual cost of college into monthly payments rather than having to come up with two lump-sum payments to cover semester bills.  So, for example, a family might decide that they want to set up an annual tuition payment plan for $12,000.  As the example below demonstrates, the tuition payment plan has a positive impact on household cash flow by spreading these costs over a 12-month period:

Month	Semester Payments		Payment Plan
July	0		$1,000
August	$6,000		$1,000
September	0		$1,000
October	0		$1,000
November	0		$1,000
December	$6,000		$1,000
January	0		$1,000
February	0		$1,000
March	0		$1,000
April	0		$1,000
May	0		$1,000
June	0		$1,000

Question:  Can you talk about the various options available to families interested in a tuition payment plan?

Answer:  First, it is important to note that most of the plans are sold through the school channel so your school is likely to already have an internally managed plan or a partnership with a tuition management vendor.  A plan can be established for:

• Entire academic year
• Specific semester
• Flexible payments in which an individual plan is set up with the student’s specific cash flow attributes in mind
• Specific needs, which might include graduate students or students with pending past due balances. 

Question:  How can students and families sign up for these payment plans?

Answer:  Here are five ways that students can apply for and set up a tuition payment plan:

• Online through the schools/payment plan provider’s website
• School’s site that takes them into application process
• Payment plan provider’s website
• Call into tuition payment provider’s call center
• Sign up using enrollment forms available through financial aid or business office
• Students/families may receive direct mail piece describing the tuition payment plan available
• The school administrator may have the capability to enroll on behalf of families through an on-line portal

Question:  What are your expectations for this coming year?

Answer:  Early indications are that growth is going to be robust.  Last year we noted that families are budgeting a higher percentage of education costs on these payment plans.  Now we are seeing nearly 50% of the cost of attendance being paid through these plans vs. 40% last year. 

Question:  What is your most popular plan?

Answer:  The majority of participants select the full year plan with the remainder interested in just a one semester plan.   We tend to see the highest level of participation at schools where the payment plans are marketed prominently; in admissions and financial aid literature as well as the tuition bill itself.  Our participation rates vary widely, with typical rates falling between 20%-60%.

Question:  What are all the costs associated with tuition payment plans?

Answer:  Here is our typical fee schedule the tuition payment plan program established by Key Education Resources (Note that these fees may vary by school as some schools subsidize the cost of these programs): 

• $65 is standard enrollment fee for an annual monthly payment plan (includes life insurance that covers the remaining scheduled payments in the event of death of the payer).
• $47 is standard fee for semester-based plan
• $30 is fee assessed for late payments or when minimum payments are not made
• No account maintenance fees are assessed. 

Question:  We hate to have to think about this but what are the consequences if payments are missed on the tuition payment plan?

Answer:  Since payments into the tuition plan are being made at the same time that services are being delivered, there is a strong incentive for participants in these plans to make on-time payments.  In fact, there is 99% collection success for what is budgeted with us.  Schools each have their own policies in terms of how they deal with late payments.  The school has some leverage, in terms of withholding grades or registration, which probably explains the high collection rates.  If a student withdraws from the program and then seeks reinstatement, there is a $25 fee to rejoin the tuition plan. 

Question:  Finally, with the employment situation still quite tenuous, is there any relief available to participants in a tuition payment plan should a parent lose a job or face other financial hardship?  Can these plans be restructured?

Answer:  Contingent upon school policy, a family can lower the amount that they have budgeted on a tuition payment plan, thus lowering the amount of future payments.  Schools will often work with families under such circumstances to help them secure alternate funding sources for the difference.  The opposite can also be true.  Suppose a family has a very small percentage of their overall cost of education budgeted on a tuition payment plan because of a loss of or uncertainty over income levels.  If their situation improves they may be able to increase the amount they have budgeted on a tuition payment plan and thereby reduce their overall borrowing.  

Thanks again to Craig Lockwood!