More money, more problems: Why tuition payment plans are under increased scrutiny

Tuition payment plans have become a core affordability tool across higher education. Nearly every institution now offers some form of installment-based approach that allows students and families to spread costs over time. But as adoption accelerates, so does regulatory scrutiny.

Scott Manley, Senior Product Manager for Compliance at TouchNet, explores timely compliance changes for institutional payment plans in a recent webinar, including the practical implications for bursars and campus finance leaders.

Drawing on insights from the Consumer Financial Protection Bureau (CFPB), recent regulatory activity and real-world institutional practices, the session highlighted how payment plans are no longer just operational conveniences. Now, they’re a compliance obligation that requires intention, documentation and cross-campus collaboration. Take a look at some key themes and takeaways from the conversation.

Putting payment plans under a microscope

Payment plans are now nearly universal. According to CFPB data, 98% of surveyed institutions offer tuition payment plans, and more than four million students and families participate in them each term. Many institutions also outsource some portion of their payment plan operations to third-party providers.

As Scott explains, “Payment plans can be considered private education loans, or even extensions of credit in certain instances.” Those distinctions affect how plans are regulated, disclosed and collected — and whether institutions are exposed to compliance risk.

What draws particular attention from regulators is the growing gap between how payment plans are marketed (like “interest-free”) and how they function once fees are factored in.

When “interest-free” means extra fees

One element of payment plans students may overlook is the cumulative cost. While most plans don’t charge interest in the traditional sense, enrollment fees, late fees and returned-payment fees can dramatically increase the effective cost to students.

“When you look at all of those different fees, the CFPB determined that students could face up to a 237% annual percentage rate against their tuition payment,” Scott notes.

This underscores why regulators are pushing institutions to rethink whether fee structures are transparent, proportionate and clearly disclosed — not just “technically compliant.”

Disclosure gaps threaten compliance and student experiences

In addition to extra fees, inadequate disclosures are another risk. Essential terms of the payment plan are scattered across multiple documents or buried in fine print. Details about fees, payment timelines, ownership of debt or consequences of outstanding payments are often missed, which can lead to unfortunate surprises for borrowers.

According to Scott, “The essential terms were often buried or scattered across multiple documents and not redisclosed as the student was enrolling in the plan.”

Inadequate disclosures can call an institution’s compliance into question and damage their student experience. Disclosures should not only exist, but be clear, centralized and redisclosed at the moment of enrollment. This applies whether institutions use sophisticated payment software or manage plans manually.

4 regulations every finance leader should know

The more you understand the regulatory landscape, the better prepared you can be to remain in compliance and provide the best experience to your students. Here are four key regulations that are most likely to affect institutional payment plans:

1. Truth in Lending Act (TILA)
   Often the first rule regulators examine, especially when a plan includes more than four installments or any type of enrollment or finance fee, this regulation protects against inaccurate or unfair credit billing practices and requires lenders to provide complete loan cost information
2. Fair Credit Reporting Act (FCRA)
   Relevant when institutions report payment behavior or unpaid balances to credit agencies, the FCRA protects the accuracy and privacy of information collected by consumer reporting agencies
3. Equal Credit Opportunity Act (ECOA)
   Requires payment plans be offered without discrimination and applied consistently
   Tap‑to‑pay for dining, printing, parking, recreation and ticketing using declining balance, stored value or payment profiles.
4. Electronic Fund Transfer Act (EFTA)
   Governs recurring electronic payments and authorization requirements

For the TILA, there is one particularly important compliance trigger — even a small enrollment fee can be considered a finance charge. “This is where a lot of institutions are surprised,” Scott explains. “Even if it’s considered ‘interest-free’, an enrollment fee is still considered a finance charge in the eyes of TILA.”

Automatic enrollment and other red flag practices

When students are struggling to pay for their tuition, it’s important for institutions to meet them with empathy and understanding. Yet, automatic payment plan enrollment and coercive collection practices can feel quite the opposite.

Imagine that a student’s financial aid was delayed, and rather than being approached with a kind conversation, the institution instead enrolls the student in a payment plan without any communication. Regulators describe this as creating a “captive market” where students have no meaningful alternative but to accept a plan, even when fees or penalties are high.

Coercive collection is another unsavory tactic. If a student fails to make a payment, consequences like mid-term course drops, loss of housing or meal plans and transcript holds can be implemented as a way to incentivize payment. These tactics function like punishments and can have significant academic and financial consequences for students.

“These practices can derail academic progress and create additional financial hardship,” Scott warns, noting that transcript withholding in particular is increasingly restricted at both the federal and state levels.

Both automatic payment plan enrollment and coercive collection practices are being increasingly scrutinized by regulators. To remain in compliance, improve student success and meet your institution’s mission, try less punitive approaches when recovering student payments.

An alternative approach: When compliance and student support work hand in hand

There are several best practices institutions can adapt to their own contexts to remain compliant and provide better student outcomes. Here are a few to consider:

• Present all payment plan terms in one clear, comprehensive document
• Require affirmative student consent before enrollment
• Minimize or eliminate enrollment fees where possible
• Cap late and return-payment fees to avoid compounding penalties
• Clearly disclose fee dispute and escalation processes
• Avoid punitive measures — especially for small balances — that may undermine retention

The most important strategy? “You should partner with your legal counsel to classify plans, approve disclosures, evaluate collections and ensure you’re meeting state laws,” Scott says. “The last thing you want is for a legal issue to catch leadership off guard.”

Improve tuition payment plans on your campus

For higher ed finance leaders, the message is clear: Now is the time to reassess payment plan structures, disclosures and policies… before regulators or students do it for you.

This recap only scratches the surface of the detailed regulatory guidance, real-world examples and audience Q&A discussed in the webinar. To hear the full discussion and explore how your institution can design compliant, student-centered payment plans, watch the full webinar on-demand here.