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CFPB warning on tuition payment plans
A consumer watchdog has a warning for students and families planning to use tuition payment plans for college.
HOUSTON - A consumer watchdog has a warning for students and families planning to use tuition payment plans for college. The Consumer Financial Protection Bureau warns that some of the payment plans come with risks, including disenrollment or high costs.
CFPB reports that nearly all colleges offer them, and nearly 4 million students turn to them each year. Payment plans can spread out a steep college tuition bill over a semester or a year.
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Payment plans are administered either by the school or a third-party payment processor. They're usually interest-free and can be very helpful to avoid taking on debt.
But the Consumer Financial Protection Bureau is warning consumers to be aware that if they fall behind on payments, some plans have snowballing charges or aggressive debt collection methods.
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"In the worst cases, late payment on tuition payment plans could lead to disenrollment or loss of basic needs access. Circumstances such as students being kicked off their meal plan, or eviction from college housing during the school term. We also saw students can have their transcripts withheld by their school," said Charlotte Hancock with the CFPB.
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The report says that many payment plans charge enrollment fees, returned payment fees, or late payment fees.
If payments are missed, it says some plans will convert the plan to a loan with high interest, or report it to a credit bureau.
The CFPB also warns some had confusing repayment terms or inconsistent disclosures.
Hancock says the CFPB is urging colleges and universities to take a hard look at their repayment plans and consumers to carefully review the terms before signing up.
If you think you might miss payments, they say you may want to compare your options to a federal or private student loan. For example, one payment plan might charge 18% interest if payments are missed, while Federal Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduate students offer a rate of 5.50%.