We’re in the midst of graduation season, when high school students are getting their diplomas and looking forward to summer vacation. But now is actually the perfect time of year to decide how they are going to pay for college tuition.
According to The College Board, a college resource website, the average cost of tuition for a four-year public college was $9,650 for the 2016-17 school year. That number jumped to $24,930 for out-of-state students. When it comes to private schools, students paid an average $33,480 in tuition for the 2016-17 school year.
If your student also needs room and board, the average cost hovers around $10,440 for public schools and about $11,890 for private.
Each college and university has different payment plans available to help students pay for the costs associated with attending the school. Here are a few options you might encounter in your research.
Pay in installments
Most people don’t have an extra $10,000 lying around to pay for tuition, so a monthly payment plan can help to lighten the load. This option allows the family to pay tuition in chunks, usually over a 10-month period. The key here is to sign up early.
“If you start by paying in May, then when school starts in September, you’ve paid the whole first semester,” said Shannon Vasconcelos, director of college finance at the College Coach. “If you don’t sign up early, you might have to make catch-up payments in the fall, which would make the plan less valuable.”
This option is especially desirable for families who have saved a little, but may not be able to cover the full costs. For instance, let’s say you have saved $7,000, and you need another $3,000 to cover tuition. Instead of taking out a loan, you can start an installment payment plan and pay $300 for 10 months.
While paying in installments is going to be the most convenient option for most people, there are some caveats. Some schools will charge an enrollment fee to participate in this plan, which Vasconcelos says usually costs around $50.
“If that’s what is going to allow you to pay the tuition bill instead of borrowing a loan with interest, then it’s worth the fee,” she said.
Pay in full
Paying in full at the beginning of the school year is likely one of the most convenient options. It allows the family to pay upfront and not stress about payments for the rest of the year. But this isn’t a reality for most people, and truthfully, there aren’t any real financial benefits to paying tuition in a lump sum for the year.
Tuition stabilization plan
One option to pay upfront that will have financial benefits is enrolling in a tuition stabilization plan.
With this option, families can prepay tuition for future semesters, usually up to four years. Tuition costs have been rising by about 3% every year, so the benefit of this plan is that it locks in tuition rates today.
If your family is in the position to do this, there are some things to consider. Most importantly, could your money be better used somewhere else? “If tuition goes up 3%, but you could make 6% in the stock market, that might be a better option,” said Vasconcelos.
Of course, putting money in the market comes with inherent risks, which you should weigh. With a tuition stabilization plan, you only lose money if the college or university lowers tuition, which is unlikely.
Families considering this option should also read the fine print, specifically when it comes to what happens if the student drops out. In most cases, the money will be returned if the student withdraws before tuition is due for the next semester, but that won’t always be the case.
Finally, some schools will charge a fee to enroll in a tuition stabilization plan, which Vasconcelos says could defeat the purpose.
“NYU charges $2,000 per year for students to enroll in this plan, which is about 4% of tuition. So you’re only benefiting if tuition rises more than 4%,” she said. “I would question the benefits of a plan that has a large fee attached to it.”
How to choose the right plan for you
Ultimately, every family’s situation is different. If you have to take out a federal loan to help cover your tuition, that’s OK. Vasconcelos just suggests doing your homework before making the commitment.
“It’s great that loans are an option, and many people take advantage of them, but some people jump into loans without thinking,” she told Yahoo Finance. “I suggest looking at your budget first and figuring out what you can pay out of pocket.”
For most families, paying in installments is probably the most attractive option because it allows them to minimize the interest you’ll pay from taking out a loan. Still, it only works if you’re able to come up with the money every month. Before you pick a plan, do your research. Go online to see how much tuition has increased at your school over time, and call the bursar’s office to see if they have plans to raise tuition in the future. Ask questions early so that you can make the best decision for your family now and in the future.
Brittany is a reporter at Yahoo Finance.