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Paying College Tuition with a Credit Card – Worth It?

by on September 6, 2012 · 22 comments

in Credit Cards, TPG Contributors

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It’s back to school time and those tuition bills are coming in the mail, so I asked TPG Contributor Sarah Tomlinson to look into the options for paying college tuition by credit card. The ability to pay expenses that high with a points-earning card is too good to resist…or is it? Check out what she found out in her research, and weigh the options that are best for you.

It seems like the perfect reciprocal relationship – pay your college tuition using a points-earning credit card and rack up big rewards that could equal a plane ticket for fun in the sun come spring break. But the reality is not quite that simple. Weigh these considerations before plunking down that plastic come back to school time.

The Cost of Doing Business
A few years back, credit card payments were often a viable option when tuition was due. More and more colleges accepted credit cards. And more and more people found that credit cards were a convenient way to bridge the gap when financial aid was not available or sufficient. If they earned rewards points, all the better.

But then, many colleges and universities realized they were taking a financial loss because of the processing fees they were charged by credit card companies every time they accepted a payment via the companies’ cards. In recent years, this has led some colleges either to stop accepting credit cards, although bankcards are often still accepted; or to charge students a processing fee of 1 to 3 percent in order to cover the costs the credit card companies levy for these transactions.

According to the National Association of College and University Business Officers, 26 percent of colleges charged a fee as of 2007 (the year for which the latest accurate data is available), which was an increase from the 14 percent who did in 2003.

However, some states, including New York, have laws that prohibit the transfer of such credit card fees to consumers. This has meant that many universities there, including New York University, no longer accept payments via credit card. Many other schools, in New York State and beyond, including Columbia University, Princeton University and Boston College also decline to accept credit cards.

Stanford University once charged a 2.75 percent fee on credit card transactions, but has since stopped accepting credit card payments all together, stating that the fees were too high for students.

While it seems that more and more universities no longer accept credit cards as payment options, at least not without a fee, the good news is that many community colleges will. For example, Portland Community College accepts both Visa and MasterCard with no fees.

Some schools are even more specific with their rules; they won’t accept Visa, which doesn’t allow them to pass processing fees on to consumers, but they welcome tuition payments made by MasterCard, American Express or Discover. However, each payment is assessed a convenience fee of 1 to 3 percent. This type of payment acceptance program is common at many schools, including Rutgers and USC, which both charge fees of 2.5 percent, and The University of Southern Maine, The University of Pittsburgh and Northwestern University, where the fee is 2.75 percent.

UCLA began accepting tuition payments by credit card in 1994, but recently began charging a 2.75 percent fee on all tuition paid by credit card. The University of Miami charges a 2.5 percent convenience fee.

For those who choose to pay tuition through monthly or quarterly installments, instead of in one fell swoop, the rules are usually the same for paying by credit card as they would be for paying by check. But it is very important to make sure that a convenience fee will not be charged along with each monthly payment, otherwise those fees could wipe out the benefit of any points you earn.

To Charge Or Not to Charge
Of course, what really matters is whether or not the school at which you are paying tuition accepts credit cards, and if so, which cards they accept, and if they charge a fee, how much the fee will be. This will allow you to decide if the fees are so high they would negate the value of any points earned through the transaction. The best way to answer such questions is to visit your school bursar’s website, where such information is usually provided.

While there doesn’t seem to be a master list of which colleges and universities charge fees and how much, most schools make such information readily available on their websites. If not, a quick call to the bursar’s office at the school should answer all questions.

There’s just one final question that the bursar might not be able to answer: Is it worth it to pay for tuition with a credit card in order to earn rewards points? And the answer to that is: it depends on whether the total cost of the convenience fee is less than the value of the points you’d earn for charging that much on your credit card, assuming your limit is even high enough to allow you to charge the full amount of tuition.

There are a few schools where students can still pay by credit card without being charged much of a fee, although it’s hard not to wonder how long this will last, given the overall climate regarding fees. For now, The University of Utah accepts credit cards with only a $1 fee for online payments, which covers the cost of maintaining their website. The University of Washington charges a service fee of approximately $83 for credit card payments; with annual expenses of $26,066 to $48,346 depending on resident status, it would clearly be financially viable to charge as much of this tuition as your credit limit will allow in order to earn the points, which would easily have a value much higher than $83.

However, at UCLA, where tuition and expenses are estimated at $31,902 and the credit card transaction fee is 2.75 percent, this would equal a fee of $877. You would then have to earn enough points on the transaction to redeem for a plane ticket or hotel room with a value of at least $877 to make the use of your credit card a viable option. Hey, maybe you’ll find a room at a Starwood Category 7 St. Regis somewhere in the world where you can redeem those 32,000 points for an insanely expensive room…but I wouldn’t bank on it.

Even at USC, where the fee is a lower rate of 2.5 percent, and tuition starts at $21,081, paying by credit card would result in a fee of $527, and again, you’d have a hard time getting that value out of any points you earned. If you put your tuition on a Capital One Venture card, for example and earned 2 points per dollar you spent, you’d have just about 42,000 points redeemable for 1 cent each in airfare, so you would be getting the equivalent of a $420 return on your fee, but that still means you’re $107 less rich.

In the end, there is no hard and fast rule about whether or not it makes sense to pay tuition by credit card in order to earn the rewards points. As always, it is necessary to educate yourself (so to speak) on your options, weigh all the information and carefully calculate the value of all applicable fees versus the points you’ll earn, and then weigh the two figures against each other before deciding.

Do that, and you’ll definitely get an A in economics this semester.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Jimgotkp

    Only makes sense to pay college tuition with a CC if there is no transaction fee or if the transaction fee is very little compared to the amount of points/miles that one can earn.

    One can still earn a lot of points when their children go to college because they still have a large number of expenses. Not only that but some parents could send their children money via Amazon Payments, etc. I doubt their children would be happy if they were given Visa/AMEX gift cards to use all the time because I would be the same.

  • http://twitter.com/Goat__Rodeo Goat Rodeo

    Someone was asking about paying off a school loan yesterday on FT, which I thought was an interesting concept.

  • Grant Thomas

    To me, the only financial advantage to pay tuition and housing via credit card is for the minimum sign up bonus, especially if you can break up the payments into smaller, separate charges. For example, if you need to spend $1,000 and the school (ucla) charges 2.75%, I would do a charge of $1,000/1.0275 = $973.24, which comes out to $973.24 x 1.0275 = $1000.01 on your credit card bill. Essentially you are paying $26.76 for the sign up bonus, always a good deal.

  • http://www.pointchaser.com/ Ariana

    My first year at USC, I used these checks Chase sent me to charge my tuition to my credit card and avoid the fees. I didn’t earn any points from it, but the interest rate on my credit card was lower than my student loans. Now, I’m using prepaid debit cards to make payments on the remainder of my student loans. There are no fees and by the time I’m done paying them off, I’ll have enough miles to fly to Europe first class.

  • http://twitter.com/askevi Askia Suruma

    It’s not just colleges that offer this option, there are a number of private grade schools which cost 25k and up and offer you the chance to pay by CC for a convenience fee. I would add another consideration is whether you are close to an award and need an additional 20k in points to put you over. This gives you a chance to do so in one transaction. Obviously should be compared to the cost of buying the points directly.

  • Will

    I attend Portland State University as an out of state resident and our transaction fee is only 50 dollars! I get a huge benefit by using my Freedom card to pay tuition on top of the quarterly bonuses already offered.

  • Mark Johnson

    The only credit card my son’s college accepts is Discover, but the fee for doing so is minimal, almost nothing. When I learned this I signed up for the Discover Miles card, which will generate enough benefit to pay for some flights home.

  • Wes

    No fees $_$ for USC = University of Southern California …
    http://fbs.usc.edu/depts/sfs/faqs/145/item/265/epay-fees/

    The USC referred to above is USC = University of Southern Carolina…
    http://www.sc.edu/bursar/schedule_allcampuses.shtml

  • AJM

    If you are a parent helping to pay your child’s tuition, and you’re not already maxing out your monthly $1,000 limit through Amazon payments, you could send money each month to your child and have the child pay the college by check. Of course, you’d have to do this over several months to cover all or part of their college expenses.

  • wq5w

    As noted, it only makes sense when the points earned are > than the transaction fee. It usually makes sense only for credit card signup bonuses when you have no other means for generating the required spend. For example, let’s take my university (Arizona State) who charges a 2.5% convenience fee and a hypothetical credit card that has a 25000 point signup bonus with a $5000 spend requirement in 3 months. Putting $5000 of tuition on a credit card will cost you $125 (2.5 cents per dollar spent). If you value the points at $.01 each, the points are worth $250. $250>$125 so it would make sense. Obviously each dollar you can spend toward your bonus on things other than tuition will save you 2.5 cents. Also obvious is that, for regular spending, unless you can earn points with a value of >2.5 cents/$ spent it doesn’t make sense to do this.

    One potential way to lower these costs is to pre-purchase Amex gift cards with a credit card through a cash-back portal (Big Crumbs Ebates etc.) and then use the Amex cards to pay tuition. These portals offer as much as 1.4% back on the gift cards, so that 2.5% tuition fee could effectively be reduced to as low as 1.1% if you pay tuition with these gift cards.

  • LarryInNYC

    Wouldn’t it be nice if Office Depot started a university?

  • Arthur

    The time I find it profitable is when I want to use my points to get Business Class on international flights on airlines where there is both availability, relatively low points required by the airline, and the travel at a partucular time is a necessity (example: RT to LED on AF for 100K Pts and $700 in AF fuel charges versus $5200). At those times, even relatively high fees can still make getting the extra points worthwhile.

  • PJ

    Your money at banks is getting almost next to nothing; no way I will pay any fees unless it is close to a wash.

  • Rcworl

    I paid my nephew’s tuition all 10 semesters at a private school that accepted American Express. No fees were charged and I earned 100,000 points plus it always allowed me to get the bonus MQM’s on the Delta Reserve card. He has graduated but my niece starts college next year. This wasn’t money out of my pocket either, their grandfather paid the tuition and let me use my card!

  • thepointsguy

    Awesome! That’s one way to rack up the spend bonus to earn those MQM’s

  • JohnnieD

    Have two daughters in college in State Univ of NY system…one school takes Amex the other takes Visa/MC, no fee added…..BTW, I pay the card off the next day after the transaction posts……..

  • thepointsguy

    It would be!

  • pianodude

    I paid $8000 this semester for my daughter, satisfying the initial spend amounts for the bonuses on two Citi AA cards ($3K spend each) and a Chase Sapphire ($2K spend), for a total of 106K AA miles and 40K Chase UR points. And a big plus is that Simpson University in Northern California does not charge a fee for using a credit card.

  • mb

    Our children attend a private school where there are no credit card fees charged. Before I paid the tuition, I applied for a no interest (15 months) and no balance transfer fee credit card…eg. Chase Slate. We then paid the tuition with two different cards, which earned my husband and I the 60k bonus miles each with American Airlines.

    I transferred the tuition to Slate after it posted and will have the tuition paid off by the end of the school year, as we had in the past with a tution management system. This is the second time we have used this process and have earned well over 200k bonus points in a little over the year.

    Thanks for all of the tips and suggestions. Our family of six are traveling, frequently, throughout the U.S….for free!

    mb

  • JM

    I started an accelerated online MBA program 3 months ago, and am set to graduate in a year, meaning that every 2 months I have a tuition payment due. Luckily, my university accepts Visa/MC so I’ve been able to already rack up 120,000 miles on a few different cards, and this is just in the last month or so. I don’t pay interest as I pay off the cards asap. Checked my credit score a few days ago, and it looks like it hasn’t changed from a few months ago, even with a bunch of new cards I applied for. Got my brother on this too, as he’s at a community college that accepts credit cards, and he’s studying to be a commercial pilot, meaning he spends a LOT. He actually gets student loans deposited to his account, which he uses to pay off the cards.

    The only reason I even looked at earning miles was because of the MBA program, and this was one of the first sites I stumbled upon, so thank you for all your posts & advice. I applied for a few Chase cards from your site, and ended up calling the re-consideration line, whose number I found in one of your posts.

    The coolest thing of it all is that I’m not even in the USA. I’m a US citizen with excellent credit history currently living and working abroad (hence the ‘online’ MBA) but still have a US residency etc. The no foreign transaction fee card like Sapphire Preferred is awesome – I charge everything on it right now and it gets me points just as if I was charging it up in the USA. Even though I’m outside the USA, it’s very doable to rack up thousands of points with all the ways described in your blog. Sometimes, a little help is needed from a family member back home, but they’re usually more than willing to help.

    Next up on my list of apps is the SPG credit card, Chase Ink, and the British Airways card. I got a year left of studying, and my goal of getting 500,000 miles is more than achievable. The process has been fun actually.

    Keep up the great blog!

  • ryanl

    0% apr card is a cheap way to spreadout the cost of tution over a few months. Even if you take a loss on convience fee – reward points, this is a much cheaper option then taking a loan… Assuming of course you pay the card off before the interest rate kicks in.

  • http://wrighteducationcentre.com/ Mikal

    mostly choching fees is many charges.

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