On a $14,800 program with $1,500 down, a 0% plan from the school costs the student $14,800. A 36-month loan for the same $13,300 costs $2,150 more at 10% APR and $3,298 more at 15%. The lender carries the collection work and the risk. The school that offers its own plan keeps the student relationship and collects the money itself.
What does each option cost the student?
Take a $14,800 program with a $1,500 deposit, leaving $13,300 to pay over time.
| Option | Payment | Payments | Total paid after the deposit | Extra cost |
|---|---|---|---|---|
| School plan, 0%, monthly | $1,108.33 | 12 | $13,300 | $0 |
| School plan, 0%, monthly | $738.89 | 18 | $13,300 | $0 |
| Loan at 10% APR | $613.73 | 24 | $14,729 | $1,429 |
| Loan at 10% APR | $429.15 | 36 | $15,450 | $2,150 |
| Loan at 15% APR | $461.05 | 36 | $16,598 | $3,298 |
The loan rates here are examples, not quotes. Real rates depend on the lender and the student's credit.
Why would a student choose the loan?
The monthly payment is lower. Stretching $13,300 over 36 months makes each payment much smaller than twelve payments at 0%, and for a student changing careers, the monthly number is often what decides.
That's worth taking seriously. A school plan that's too short to afford isn't better than a loan that is. The fix is often a longer school plan: eighteen or twenty-four months at 0% narrows the gap in the monthly payment without adding interest.
Who can get each one?
A lender usually checks credit. Students with thin or damaged credit files, which describes a lot of people retraining for a new career, may be declined or offered the higher rates. A school deciding who it will offer its own plan to can set different terms, such as a larger deposit, instead of saying no.
What does the school give up, and what does it keep?
With a lender:
- The lender collects the payments and carries the risk that a student stops paying.
- The school may receive the tuition sooner, though some arrangements pay the school less than the full amount or charge a fee. Read the agreement.
- The student's monthly relationship is with the lender, not the school.
With its own plan:
- The school collects every payment and follows up on the ones that don't come in.
- The money arrives over time instead of up front.
- The student stays in touch with the school for the life of the plan, which is useful when they're deciding whether to come back for the next program.
What does carrying the plan cost the school?
Money collected over twelve months is worth less than money in hand today. On a 0% plan for $13,300 paid monthly over a year, the school has, on average, a little over $7,000 still to collect across that year. If the school's own cost of money is 8% a year, carrying that balance costs it about $575 on this one student.
That's the number to compare with a lender's terms. If a lender pays the school up front but keeps a fee or a discount larger than that, the school's own plan costs it less. The comparison changes with the plan length, your cost of capital and how reliably students pay.
Is a 0% school plan regulated?
It can be. Federal Truth in Lending rules can treat a business as a creditor when it regularly extends credit payable in more than four installments, even at 0% (12 CFR 1026.2). Interest-free school plans of a year or less are excluded from the private education loan rules (12 CFR 1026.46). States can go further, and California requires many for-profit schools to register tuition plans, including 0% plans. Check with counsel before you design or lengthen a plan.
Paycove runs 0% tuition plans from your school, built from the enrollment, with no lender in the middle and each campus paid into its own account.
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