| Paying for college with an installment
plan |
| By Lucy
Lazarony • Bankrate.com |
|
Many families will have to stretch and stretch to
pay those pricey bills come August, which means lots of folks are
in for a stressful, penny-pinching summer. But help is available.
Behold the installment plan.
Graduate those payments
An installment plan lets you pay for a son or daughter's tuition
with several payments over the course of a school year. Many plans
allow monthly payments. Others allow up to three payments each semester.
"We think they're great," says Ray Loewe,
president of College Money, a financial planning firm in Marlton,
N.J. "You usually start paying for them as soon as you get
accepted. You pay for college on a monthly basis. Most of the plans
are interest-free."
However, the plans come with set up fees of $40 or
$50.
Some colleges offer their own payment plans. Others
use outside agencies.
An installment plan is a great option for families
that have tried everything else. They've saved as much as they can.
They've endured all the twists and turns of the financial aid process.
And they're still coming up short.
Even with the help of some financial aid, they're
really going to have to struggle to pay college costs. An installment
plan can help by breaking down potentially budget-busting education
bills into smaller and easier-to-manage payments.
"Some parents expected more financial aid than
they're getting," says William Hastings, president of Academic
Management Services, which offers payment plans at more than 1,200
schools nationwide.
"This is a way to pay out of current income instead
of using savings."
Help for the financially handicapped
When it comes to paying for college, many families spread themselves
thin. They manage to pay a mammoth tuition bill but wipe out their
savings in the process. So car and house repairs and everything
else get put on credit cards. When those get maxed out, they have
to borrow from a 401(k) or take out a home equity loan.
"College is a tricky time for parents. A lot
of them get into trouble because they tend to overdo things,"
Loewe says. "It spirals and it gets out of control."
An installment plan can help a family come to grips
with college costs without piling up debt. Several smaller payments
over the course of the school year are much easier on a family's
budget. A $7,000 tuition bill doesn't seem as daunting when you
spread it out over 10 months.
And after all the layoffs and stock market losses
in the past year, what family couldn't use a financial breather?
Federal help for families
Families that can't handle the payments on an installment plan should
consider taking out a federal loan.
Parents may borrow up to the full cost of a student's
education minus any financial aid with a Parent Loan for Undergraduate
Students (PLUS). These loans are government-sponsored and have a
variable interest rate that is capped at 9 percent. PLUS loans will
have an interest rate of 4.17 percent through June 30, 2005.
Families must pass a credit check to qualify for a
PLUS loan. Monthly payments begin within 60 days of the loan disbursement.
Some families end up paying for college by combining
a PLUS loan with an installment plan.
An online calculator on the Academic Management Services
Web site called TuitionPlanner
can help a family determine how much of an education bill to pay
with an installment plan and how much to pay with a loan.
Affluent families may want to consider paying college
bills with installment plans as well. Why cash out an investment
to pay a bill when you can pay over time, interest-free?
"We encourage parents even if they have the money
to take advantage of these plans," Loewe says. "Put the
money in a money market account and earn interest on it."
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