Is Paying Your Tuition With A Credit Card A Good Idea?

Convenience fees could wipe out any rewards you hope to earn, and carrying debt at typical credit card interest rates would be extremely costly.

Lindsay KonskoDecember 6, 2013
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As the cost of college continues to climb, you're bound to wonder if paying tuition with a credit card could offset at least a little of the expense. After all, putting thousands of dollars on a rewards card is a fast way to pile up points, miles or cash back.

The first thing to consider is whether it's even possible to put a tuition payment on a credit card. If your school doesn't allow credit card payments, the question is mostly academic (pun intended). If your school does allow it, that doesn't mean you should do it. The associated costs could easily swallow up the value of whatever rewards you'd hoped to earn.

Some inconvenient fees

Say you had a credit card that gives you 1.5% back in rewards for every purchase. Put a $10,000 tuition bill on the card, and you earn $150 in rewards without any extra effort. That type of return typically takes months to earn.

But guess where your credit card issuer gets the money for those rewards. A big chunk of it comes from transaction fees paid by merchants who accept credit cards. A typical transaction could result in a fee of 1.5% to 3%. Retailers and other merchants who regularly take credit cards will factor them into their prices — they're just a cost of doing business, like rent or wages.

But your university isn't like other merchants. It's probably not going to pay that transaction fee. Instead, it will pass it on to you as a "convenience fee." Convenience fees are typically about 2% to 4% of the amount charged. You don't need to have earned a degree in higher mathematics to see that spending $200 to $400 in fees to earn $150 in rewards is a lousy tradeoff. You're better off paying your tuition with an old-fashioned check (or a newer-fashioned electronic payment).

Nerd tip: Not all colleges charge a convenience fee. Community colleges in particular tend to be more generous about allowing students to pay with credit cards without charging an additional fee.

Then there's the interest

So far we've assumed that rewards are what's motivating your desire to pay for school with a credit card. There's also the possibility that you want to put tuition on plastic because you just don't have the money to cut a check.

But putting tuition on a credit card and then carrying the debt is even more expensive than swallowing a convenience fee. The culprit here, of course is interest. Credit cards routinely charge 15% to 25% interest. If you put that $10,000 cost on a card and carried the debt for just one month, you'd be looking at $125 to $200 in interest pretty much right off the bat.

Interest rates on student loans are considerably lower than on credit cards. If you need to pay for education with borrowed money, then use something that's specifically designed to fund education and be repaid over years, not a consumer-spending tool like a credit card.

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