College Tuition & Credit Cards: The Hidden Costs You Need to Know

As a strategy, paying for college with a credit card sounds enticing. Your card probably offers generous air miles or points for every dollar you spend, and you have the mother of all bills to pay for so why not?

You probably think “Ah-hah! Put college on the card, and I’ll get to travel the planet gratis.”

The Convenience Fee

Like many ingenious schemes, this one has a problem. It’s called a convenience fee, a processing surcharge credit card companies tack on to transactions that is profit for them and very expensive for you.

In a 2016 survey of 300 of the nation’s largest public, private and community colleges, CreditCards.com found that 255 of them (85%), accept credit cards for tuition payments under certain circumstances.

But here’s the catch: 145, or 57%, impose convenience fees averaging 2.62%.

Clearly, that is a major impediment, since most cash-back offers attached to credit cards range from 1% to 2%. A 2.6% convenience fee eats up the card reward and then some.

Students and their parents are customers, and colleges and universities want to make it as easy as possible for them to pay their bills, but they balk at absorbing the convenience fee themselves. They prefer to add it to the bill.

Most people who use credit cards for routine purchases never encounter a convenience fee because retailers simply build the fees into their charges. Most academic institutions won’t do that. They have two prices: one for those who pay with a check, the other for credit cards.

The CreditCards.com survey found that institutions differ. Of 100 community colleges surveyed, 97% accepted credit cards and only 8% charged convenience fees. But 93% of public universities and 77% of private schools that accepted cards added convenience fees.

Paying college bills with credit cards remains unusual. Just 2% of parents and 5% percent of students use them for tuition, even as the number of institutions accepting them slowly grows. If you’re tempted to use a card, do some research:

• Always ask whether the school charges a convenience fee. If it does, find out how much it is. Some colleges charge a minimum convenience fee for any transaction. Others add on a percentage cost, which varies. You should ask first or risk seeing it on your monthly statement.
• If you want to use a debit card, query about those fees too. Some schools treat debit cards like credit cards, adding a convenience fee to the total.
• Ask if you can get your money back if you drop a course. Some schools will return you tuition but won’t refund the convenience fee.
• If you want to pay with an international credit card, ask whether the convenience fee will be higher.
• Find out whether credit card use is restricted. Some universities will allow students in one division, for instance its grad schools, to pay tuition with plastic, but prohibit them for paying tuition in undergraduate courses.

So far, we’ve assumed that you would only want to use a credit card to collect reward points or rebate offers. But some people might be tempted to pay with plastic to finance college costs. They don’t have the money to pay tuition at the start of the semester, but expect a commission check or bonus to come by mid-terms, so they put the bill on their credit card.

This can be a huge mistake unless you plan to pay off the card balance every month.

Student Loans Have Lower Interest Rates

If you don’t have enough ready cash to pay tuition and expenses at the start of the term, put the credit card away and turn to other financing options. Student loans are the most common, but parents could use home equity lines and personal loans to meet the bills. Student and home loans offer a variety of advantages, like deferred repayments and relatively low interest rates.

Credit cards are different story. Most card users know carrying a balance can be costly, with financing APRs often exceeding 20%. What often is overlooked, however, is how a big number like tuition will affect your credit utilization ratio – the percentage of your total borrowing being used.

Credit bureaus use credit utilization when establishing a borrower’s credit score. If your ratio exceeds a certain percentage, it lowers your credit score, which can mean raising the interest rate on your card. It also could make it more difficult to borrow money in the future.

Generally, it’s a bad idea to use a credit card for tuition if you can’t pay the monthly bill on time or it forces you run a balance that eats into your credit limit.

Though credit cards offer a tempting alternative for tuition payments, they clearly come with red flags. Before you opt to put an academic bill on plastic, consider the consequences and know the charges. A credit card might make sense for paying colleges and universities that charge small or no convenience fees, but most don’t fit that mold. It’s best to look for another method to cover the costs.

If You Charged Your Tuition to Your Credit Cards

If you regularly charged your tuition to your credit cards and now carry a large credit card debt that you are having trouble paying off, you should consider getting help from a nonprofit credit counseling agency like InCharge. You may qualify for a debt management program where you could reduce your interest rates and consolidate your monthly payments.