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.
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 2020!
|* 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.
1 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 11/4/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
4 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).
5 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 applicant’s ability to supply the necessary information for submission.
5 Important Disclosures for Citizens.
Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As March 1, 2020, the one-month LIBOR rate is 1.62%. Variable interest rates range from 2.72% – 10.98% (2.72% – 10.83% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens One is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensone.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Citizens One Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens One reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens One Student Loans private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens One Student Loans-participating school.
Please Note: International Students are not eligible for the multi-year approval feature.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
|2.75% – 10.65%*,1||Undergraduate and Graduate|
|2.84% – 10.97%2||Undergraduate, Graduate, and Parents|
|2.80% – 11.37%3||Undergraduate and Graduate|
|3.52% – 9.50%4||Undergraduate and Graduate|
|3.14% – 11.88%5||Undergraduate and Graduate|
|2.72% – 10.98%6||Undergraduate and Graduate|