Payment Plans And The College Affordability Test

Call it the $1.6 trillion challenge.

College is a rite of passage for some, a dream for others and a financial challenge for just about everyone who strives for a diploma.

Paying for it all can require a degree in financial planning, perhaps, before students ever face a professor in a lecture hall.

Taking on debt – in the form of student loans that require payments pretty much as soon as the sheepskins are in hand and stretch across decades of repayments – is a time-tested way of grappling with the increasing costs of secondary education.

In an interview with Karen Webster, Sharon Butler, executive vice president of global education at Flywire, noted that there is roughly $1.6 trillion in outstanding student debt right now.

“It’s a pretty scary number,” she said, “and you start to think about the impact on so many things – the ability to afford buying homes or be financially independent.”

Butler said the decision to take on student debt can be among the most significant financial events in a borrower’s life – and in many cases, it does not get the careful consideration it warrants.

After all, as Butler told Webster, taking on tens of thousands of dollars in borrowing (maybe even more) comes amid moments of excitement and euphoria. The mindset, she recounted, can be boiled down to “‘Hey, I got accepted to this amazing university,’ and the idea is … let’s make this dream come true.”

But, said Butler, embracing student debt should be viewed as a business decision, where every bit of pre-planning helps. Individuals about to become students – as well as their families, borrowers and co-borrowers – should do the same amount of research that might be conducted when buying a home. In that process, she said, would-be homeowners ask themselves (and answer) the most basic questions of affordability (and even stress-testing what financial hardship might mean for mortgage payments).

The same clear-eyed reasoning should be in place when embarking on the road to paying for higher education, with an eye on real-world scenarios that await after the diploma is in hand – such as the salary that accompanies a degree or career path.

Financial literacy can make a difference, Butler pointed out – and so does having insight into all of the financial aid options on offer from a university, college or lender.

Getting Schooled on Payment Plans

Financial literacy might also include gaining knowledge on the availability and affordability of payment plans on offer from schools, said Butler.

The stats are sobering enough to point to such plans as an especially useful tool in staying timely on loans.

In the Tuition Payments Study done jointly between Flywire and PYMNTS, which surveyed nearly 2,000 consumers, loans were the top choice of students (or those who support them) as a means of making tuition payments — 46.4 percent of enrolled students and 40.5 percent of supporters.

But drill down a bit, and nearly 49 percent of students and more than 38 percent of supporters are behind on their payments (or have been in the past). The situation is rough enough that more than 41 percent of student borrowers surveyed said the payment delays could result in expulsion.

Against this backdrop, Butler said, payment plans could relieve tuition anxieties, as they are tailored to be affordable for individual financial situations. More than 37 percent of the consumers surveyed said they would be interested in such plans, where debt is paid down when the student is still in school – but Butler noted that of the total undergrad population, only 17 percent opt into those offerings.

Part of the low adoption rate stems from lack of visibility, Butler told Webster. Some institutes of higher learning offer a higher level of customer service than others. In some cases, she said, the technology (especially mobile technology) on offer from a university does not allow for an intuitive, flexible or easy experience when exploring payment plans. That’s especially true when borrowers would find it useful to split payments among several payors (such as parents, grandparents or other supporters).

Advantages accrue not just to the borrowers, but also to the financial institutions because cash flow becomes recurring and more visible – and the loans themselves are paid down (at least somewhat) while students are still in school.

Working Students, Late Payments

The conversation turned to the fact that many students, putting forth their best efforts to make tuition payments, work full time.

The Tuition Payments study found that late payments still remain a challenge: As many as 46 percent of students use money from full-time employment to pay tuition costs; roughly 63 percent of students working full-time jobs are currently late on payments.

Call it another point of friction. Students are working in order to make the tuition payments, but they are not always able to make them in a timely fashion, because life gets in the way. Automatic payments can help here, said Butler.

And while the specter of missed payments may haunt those who fear their academic careers may be in jeopardy, Butler said schools can avoid having students experience “their dreams crashing.”

Call it a pre-collection payment product, said Butler, where the college is proactively offering solutions and avoiding debt going into collection (and where, of course, recovery fees accrue). Missed payments can themselves be spread out over time, in manageable increments.

“All of a sudden, you get a text message that says ‘hey, we see that you have a short balance and we really want to help you. What if we give you three months to pay it? Click here and sign up’ … and suddenly you’re able to make the back payments to get back on track,” said Butler.

“You really need to provide them a service or a solution that they’re used to doing,” Butler said of payment plans, “so they need to be able to enroll on their mobile apps. We need to be able to get messaging out to families early that these options are there, and we need to have better strategies in the student financial service offices and financial aid offices and help them create awareness of these options.”