Paying your child’s tuition for private elementary or high school with a credit card can net you rewards, but it may also cost you interest and fees. Here’s what you need to know before you decide to swipe for school.
Rewards are great, but fees may negate them
Tuition and fees for private schools can rival those at some colleges, so there are potentially high rewards to be had when you pay with plastic. Rewards credit cards generally offer 1% to 2% on every purchase in the form of cash back or free travel.
According to a study by the National Center for Education Statistics, the average private high school tuition in 2011-2012 was $13,030 a year. At that average, using a cash-back credit card for tuition might net you $130-$261 in rewards.
That said, there may be a catch. Many schools charge convenience fees — usually ranging from 2% to 4% — for using plastic, making it less likely that you’ll be able to come out ahead. Generally, if you’ll incur convenience fees in excess of your rewards rate, it’s not a good idea to pay with plastic. So check with the school about these fees before you decide to put your child’s tuition on your favorite rewards card.
Nerd note: Payment networks including Visa and MasterCard allow qualified education and government entities to add convenience fees to make up for interchange charges. For more information, check out the guidelines of the Visa Government and Higher Education Payment Program and the MasterCard Convenience Fee Program for Government and Education.
Avoid carrying a tuition-size balance
Credit cards are typically one of the costliest forms of financing. So they shouldn’t be used for long-term financing unless you have a card with a 0% or low-rate introductory APR. And even then, it’s important to pay off that balance before the 0% rate expires to avoid accruing interest or owing retroactive interest on the initial balance.
Say you put that $13,030 tuition bill on a credit card with 15% interest. If you make only a minimum monthly payment of $260, it would take about 6½ years, as well as $7,151 in interest, to pay your balance in full. That’s equal to more than a 50% tuition increase.
That’s why it’s wise to put a tuition bill on your credit card only if you have the money to pay it off right away and there are no convenience fees or the fees are lower than what you’ll earn in rewards.
Other options for private school
If you can’t afford the tuition but still want to send your child to private school, there may be options to lower costs or delay payment in full. Some private schools offer merit- or need-based scholarships for K-12 education. You might also be able to set up a payment plan if you can afford to pay the tuition in increments. Contact your child’s school to explore your options.
You can also take out an education loan for primary and secondary schooling at interest rates typically below those of most credit cards. But if you have to stretch your finances for private schooling, you may want to reconsider public education or look to cut living expenses or increase your income to avoid going into debt. Keep in mind that paying for college will be that much harder if you head into it with significant debt for primary and/or secondary education.
Start saving with a Coverdell ESA
You can start saving for your child’s eligible primary, secondary and post-secondary educational expenses today with a Coverdell Education Savings Account (ESA). While ESA contributions — which are limited to $2,000 per year per beneficiary — aren’t tax-deductible, the earnings grow tax-free. This savings option isn’t available to everyone, but if your modified adjusted gross income falls under a certain threshold, it may be a good option for your family.
The bottom line
If you can put your child’s tuition on a credit card without incurring interest or fees that wipe out your rewards, go for it. If you’re in a financially tight spot, consider sources of aid as outlined above to reduce the tuition bill or spread out the payments to make them easier on your budget.
Image via iStock.