With so many great credit card offers out there, it’s no wonder those potential rewards can sound tempting to you. Perhaps you’ve even considered paying your tuition with a credit card to earn rewards like cash back or airline miles.
But, while it may sound like a good idea on paper, it’s not so easy in practice. The drawbacks may, in fact, outweigh the benefits if you pay tuition with a credit card. Here are a few things to keep in mind.
Benefits if you pay tuition with a credit card
We all know getting a degree can be expensive. One year at a 4-year public university cost $9,410 on average for in-state students, while a year at a 4-year private university will set you back $32,405.
By placing such a large expense on a credit card, the potential rewards are significant.
For example, if you have a card that offers 1% cashback on all your purchases and you charge $9,000 for tuition costs, you could earn $90 in rewards. That’s a big bonus for a transaction you would have made anyway.
Beware credit cards and processing fees
While earning rewards can sound like a great idea, pulling it off can be difficult.
Many colleges and universities will add a processing charge to your bill if you opt to use a credit card. So when you pay your tuition, hidden costs in the form of fees could pop up.
According to a recent survey from CreditCards.com, 85 percent of the 300 largest U.S. private, public and community schools accept credit cards for tuition payments. Of those, more than half charge a fee for the convenience of using plastic.
Meanwhile, that same survey also found that the average credit card processing fee is 2.62 percent. Which is most likely high enough to wipe out any reward benefits you would have earned.
For example, if your tuition was $9,000 and the school added the average 2.62 percent processing fee, you would end up paying an additional $235.80. That’s more than double what you would’ve earned in cash-back rewards.
If you’re considering paying tuition with a credit card, it’s best if you attend one of the few schools that do not charge a fee. Check with your financial aid office to see if your school is one of them.
Consider the interest charges on credit cards
Even if your school is one of the few who doesn’t charge a processing fee, there are other downsides to paying tuition with a credit card.
Compared to other payment options like student loans, credit cards are much more expensive. Especially if those credit cards carry an interest rate higher than 15.00% APR.
While you may want to use a credit card to pay for tuition, doing so can cause you to get overwhelmed with debt. Once interest starts building, it can be hard to dig yourself out of credit card debt.
Additionally, if you don’t pay off your tuition charge in full by the next month, you could end up racking up interest charges. And, in the process your tuition payment could balloon in size. Talk about a lose-lose scenario.
Impact on your credit score
Credit card reporting agencies like TransUnion, Experian, and Equifax look at your credit utilization to determine your credit score. That means they look at how much of your available credit you use each month.
When you make a huge purchase, like a tuition payment, you use up a huge percentage of your credit line. That move can reduce your overall credit score. Which, in turn, can make it harder to get a good interest rate on an auto loan or even get approved for an apartment.
If you pay tuition with a credit card, you could hurt your future financial credit standing.
There are other options
Again, paying tuition with a credit card only makes sense if you go to a school that does not charge a fee. And, if you can afford to pay off the balance quickly.
However, if your situation doesn’t meet either of those criteria, you are probably better off paying for school in another way.
While student loans sometimes get a bad rap, they are much more cost-effective than a credit card. With interest rates usually between four and eight percent, you will incur less debt from interest. Credit cards don’t even come close to those interest rates.
Student loans also offer easier repayment terms. Rather than worrying about paying off your credit card by the next statement period, you can have ten years or more to pay off your student loan debt.
Additionally, with a student loan, you can often defer payments until after graduation. With a credit card, you have to start making payments right away, even if you’re in school full-time and unemployed.
If you are looking for ways to pay for school but don’t qualify for federal student loans, you can still get help covering the cost of college through private student loans.
Private student loans can cover your school costs when federal student loans or grants are not an option.
In the end, if you need money to pay for college and are thinking of using a credit card to fill the gap, make sure you compare offers from private lenders to find the best one for your financial situation.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.06% – 13.06%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.25% – 11.10%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|5.62% – 10.01%7||Undergraduate and Graduate|
|3.93% – 9.81%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|