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Tuition Payment Plans in Higher Education

Many Americans have their first experiences with lending, debt collection, and credit reporting while in college. While federal student loans from the U.S. Department of Education and private financial institutions are the major ways in which students borrow, this report examines a financial product that is less familiar to many students and families: a tuition payment plan.

Many colleges allow students to pay for postsecondary education in installments using tuition payment plans. When colleges do so, they allow students to obtain their education now and pay for it over time; in other words, they become lenders. While tuition payment plans are generally marketed as alternatives to loans, many tuition payment plans should be understood as at a type of loan. Typically, these plans allow students to spread the cost of tuition and other educational expenses across several payments over the course of a single semester or term. These tuition payment plans vary and may be paid in as few as two to four installments or in many installments stretching beyond the length of one year.

Products marketed as tuition payment plans have a wide range of product structures. School-provided payment plans may be managed by the schools or administered by third-party payment processors (e.g., Nelnet, Transact, or TouchNet). Typically, tuition payment plans are interest-free, but colleges (along with the third-party service providers that facilitate payments) commonly charge enrollment fees, late fees, and returned payment fees.

This report builds on the CFPB’s recent work including a report on deposit and credit products offered by colleges or in college settings; recent supervisory examinations of institutional student lenders; publications on buy now, pay later (BNPL) products; and other work on products offered by trusted intermediaries.

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