When it is time to pay the college bills there are a number of basic options available to parents and students.
The best strategy for your family will depend on the composition of your family resources and the amount you are expected to pay. Will you be paying with cash flow from monthly income? Or using savings from a 529 plan or some other liquid asset? Or borrowing through the Federal PLUS program or some other parent loan option? Or some combination of all three options?
But let’s first start by answering some very basic questions.
When will we be billed?
For a typical two term academic year you will likely receive a bill in June or July for the fall term and another in December for the spring term. The fall term bill will be due in late July/early August and the spring term bill in late December/early January.
How will we be billed?
At most schools the bill notifications are sent to the student via email and all the relevant information is available online. Very few colleges still produce and mail paper bills. That said, the student is able to log into their account and change a setting which gives parents access to all billing information.
What are our payment options?
You have a few options.
It’s easiest to start with a simple example using round numbers. Let’s say the total yearly bill is $20,000 after all disbursable financial aid is subtracted. In this example, the academic year is comprised of two semesters so there will be a fall term bill for $10,000 and a spring term bill for $10,000.
Option 1 – Basic Payments
If you have enough cash flow between income and liquid assets to cover the full cost, then you can simply pay $10,000 in the summer when the fall term bill comes due and $10,000 in the winter when the spring term bill comes due.
Option 2 – Payment Plan
Most colleges provide an interest free monthly payment plan option that will allow you to pay over time, typically 10 months for the full year of 5 months for one semester. There is no cost other than an application fee, typically under $100. In this scenario, you would make ten, $2000 payments, probably starting on June 1 and ending on March 1.
Option 3 – Borrowing
You may choose to borrow the full amount. Since many families make use of the Federal Parent Loan program (PLUS), we will use PLUS for this example.
Federal regulations require that PLUS loans are split into two disbursements – the first at the beginning of the enrollment period and the second at the midpoint of the enrollment period – so you must apply for the full amount upfront so that half the loan amount covers each semester. Since there is a 4% origination fee, you actually have to borrow $20,883 so that net amount of each disbursement equals $10,000.
Remember that PLUS is a loan that must be repaid. If you choose the standard repayment option then your payments will begin 60 days after the second disbursement, which in this example would be around March 1. At the current rate of 7.21% the monthly payment would be $245.
Option 4 – Combination Strategy
If you have enough resources to pay some but not all of the billed expenses you can combine options. For example, you could pay $10,000 through the monthly payment plan and $10,000 with PLUS.