Deep Dive: Real-Time Payments Make The Grade In Higher Education

The cost of college tuition is skyrocketing across the country, and the financial burden falls on many parents and students. Legacy college tuition payment methods, such as personal checks or credit cards, can be slow and costly, adding to many families’ frustrations. Parents and higher education institutions are learning their lessons and are turning to real-time payments for greater efficiency and ease of use. Real-time payments add on no processing fees and help payers better manage their budgets.

In this month’s Faster Payments Tracker, PYMNTS explores how real-time payments are upgrading the sometimes clunky tuition process for families, pushing into a space ripe for change.

Speeding up tuition payments

The nascent U.S. market for real-time payments is growing, projected to rise at a compound annual growth rate (CAGR) of more than 80 percent between 2018 and 2022 to more than 7 million transactions, according to one report. Forecasts estimate that 25 percent of online bill payments will be sent in real time to colleges and universities by 2022. Such payments are taking market share from ACH transactions, checks and debit cards in doing so.

ACH is the most popular higher education payment method, accounting for 40 percent of tuition payments, according to a separate report. The appeal is easy to appreciate as ACH payments are mostly free and more convenient than writing and sending personal checks. It can sometimes take several days for funds to deposit, however, since TCH bundles large numbers of transactions in a single batch and only sends the batches out at certain times.

Though paying by physical check also does not incur payment processing fees, parents and students must send checks days in advance of the due date to ensure payment arrives on time, and, like ACH, further time can be lost to processing. The method is less convenient than competing options and it is most susceptible to identity theft and fraud.

Credit or debit cards can be convenient and relatively fast, processing in a day or two. Millennials prefer using cards, with 42 percent paying their tuition bills in this way — only 5 percent opted to use checks.

These options may not be considered fast enough for today’s students or their parents, who have grown comfortable buying gas, groceries and other daily essentials with just a swipe. Real-time payments, which instantly move funds from one bank account to another, provide convenience, security and speed. Students and parents can send tuition payments with such technologies to any institution, anywhere, anytime at no cost. Real-time payments even move money faster than same-day ACH or credit card transactions, and since payments are immediately withdrawn from bank accounts, payers do not have to worry about overdrawing.

Schooling higher education

Instant payments offer significant benefits for higher education institutions, too. Colleges can collect tuition more efficiently and therefore quickly distribute financial aid funds and other supports to students. Institutions can take a few simple actions to help parents and students stay up to date, including text message reminders to pay, before upgrading payment systems to support real-time solutions.

Such upgrades provide benefits beyond speed — they are also valued for their security. Many systems’ advanced technologies use tokenization processes that create unique party identifiers and shields account numbers within the system.

That reputation does not mean that real-time payments are immune to fraud, of course. PYMNTS reported earlier this year that such systems are susceptible to account takeover (ATO) fraud, where bad actors assume account control and steal money from inattentive holders. Younger generations, including students, are sometimes lured into transferring money to criminals, tricked into thinking they are helping someone in need.

The speed of real-time transactions means that money inadvertently sent to the wrong accounts likely cannot be recovered. A parent sending a tuition payment to the wrong college would have to rely on the recipient’s good will to recover the money. Both ACH and credit card providers can refund users’ accounts if legitimate misuse is proved.

Real-time payments have nonetheless become invaluable within the financial services and insurance arenas, and the method continues to expand into other industries. Such transactions are making the grade in higher education by significantly lowering stress for families that need to make ever-increasing tuition payments.