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Paying College Tuition on a Credit Card: Fees vs. Rewards

by on August 20, 2014 · 35 comments

in American Express, Avios, British Airways, Chase, Credit Cards, Delta, Hilton, Hyatt, Starwood, TPG Contributors, Ultimate Rewards, United

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I always advocate using rewards credit cards to help you fulfill your award travel aspirations. As one of the foremost expenses for many Americans, college tuition can be a great opportunity to earn points and miles, but the fees involved with using a credit card can make it a losing proposition.  Today TPG Contributor Nick Ewen explains when paying college tuition with a credit card makes sense, and when it doesn’t.

With the end of August approaching, many people are getting ready to head back (or send their kids back) to college. It’s no secret that the costs of education are creeping (or rocketing) higher each year. However, many institutions allow tuition and other fees to be paid using a credit card, which creates the opportunity to earn massive amounts of points & miles. So to help you maximize your award travel, and to hopefully alleviate some of the financial burden of higher learning, in this post I’ll discuss when it might make sense to pay college tuition with a credit card (and when it doesn’t).

The price of college tuition is on the rise, but you may still be able to leverage your points & miles expertise by paying these expenses with a credit card! (Image courtesy of Shutterstock)

Tuition is on the rise, but you can leverage your points & miles expertise by paying for college expenses with a credit card (Image courtesy of Shutterstock)

Right off the bat, you’ll want to investigate whether your institution allows this as an option. A quick call to the finance office or registrar should do the trick; I’ve also found that most colleges make this information readily available on their websites. You can also search for something like “Insert college name here tuition credit card” in Google, and it will likely take you directly to the site. Keep in mind that many colleges change their policies from year to year, so make sure the information you’re looking at remains valid, and be sure to double check with your institution.

Generally speaking, colleges should fall into one of three categories:

  1. Tuition cannot be paid with a credit card (like my undergraduate alma mater, Wake Forest)
  2. Tuition can be paid with a credit card with no fee (like one of the graduate schools I attended, University of Nevada-Las Vegas)
  3. Tuition can be paid with a credit card with a fee (like the University of Florida, where I obtained my MBA)

The first two options are a no brainer. If you can’t pay with a credit card, you’re out of luck. If you can use a credit card without any fee (or with a very low fee below 1% or so), then you ABSOLUTELY should do it, and thank your lucky stars that you can. Of course, remember that any points or miles you earn on credit cards are essentially negated by interest and finance charges (which are unfortunately much more expensive than student loans), so you should only charge tuition to a credit card if you can pay the balance off in full.

The third category above is a little murkier; does it ever make sense to incur an additional fee to use a credit card? My answer is an emphatic YES. Let’s take a look at a few examples.

If you have a high minimum spend on a new card, paying a fee for charging your tuition may be a good idea. (Image courtesy of Shutterstock)

If you have a high minimum spend on a new card, paying a fee to charge your tuition may be a good idea. (Image courtesy of Shutterstock)

Meeting minimum spend

Just about all credit cards that offer sign-up bonuses require you to hit a certain minimum spend threshold (the US Airways MasterCard is a notable exception, offering 40,000 miles after a single purchase). Many spending requirements are easy to hit, like the $2,000 needed to earn 50,000 Avios on the British Airways Visa. However, some of the higher numbers present a more daunting challenge, especially if you open multiple cards at the same time. If the only way you’ll be able to hit a minimum spend threshold is by incurring a fee, it’s likely worth doing.

For example, let’s suppose that you have a $10,000 tuition payment coming due for the University of Florida, which charges a 2.6% fee for paying with a credit card. Let’s also suppose that you applied for the Citi Executive AAdvantage MasterCard last month, which (at the time) was offering 100,000 American AAdvantage miles when you spent $10,000 in the first three months of cardmembership. If you had absolutely no other way to meet that minimum spend requirement, then charging the tuition would have made sense. You’d be earning 110,260 AAdvantage miles for $260 in fees ($10,000 x 2.6%), which works out to a measly 0.236 cents/mile. TPG values AAdvantage miles at 1.7 cents/mile, so this clearly works in your favor.

The important thing to note about this calculation is that it assumes that you have NO other way of hitting the $10,000 minimum spend threshold. If you can shift fee-free spending from other cards over those three months, that is obviously preferable to paying the 2.6% fee, but if you open multiple cards at once and may miss out on a windfall like this because you don’t have enough monthly spend to go around, then incurring the fee is well worth it.

Which card is the best to earn bonus miles on United?

If you need points to post ASAP to lock in award flights on United (for example), incurring a fee for paying college tuition may be a decent option.

Another angle here involves the timing of the sign-up bonus. Suppose you have a $5,000 tuition bill coming due with the same 2.6% fee. Now suppose that you just opened the Chase Ink Bold card, which is currently offering 50,000 Ultimate Rewards points after $5,000 spend in the first three months of cardmembership. You may have no problem hitting that number within three months. But what if you need to have those points sooner rather than later?

Maybe you have a honeymoon coming up in a couple of months, and you’re hoping to transfer those points to Hyatt to book two nights at the Park Hyatt Maldives (possibly to complement the two free nights from the Hyatt Visa). Or maybe you’re trying to book an award ticket using United miles, and you desperately need those 50,000 miles to top off your account for that first class seat. In either case, if availability isn’t great and you’re afraid of missing out on the award, it might make sense for you to incur the $130 fee.

That seems like a paltry amount compared to the stress of finding an alternate plan for a big trip. Just keep in mind that the timing for receiving sign-up bonuses can vary widely. Most cards will give a disclaimer along the lines of “Please allow 4-6 weeks for bonus points/free night certificates to post to your account.” In fact, the Chase Ink family of cards claims that their bonus points will take 6-8 weeks to show up. However, I just hit the minimum spend on my new Chase Ink, and the points showed up immediately:

Chase Ink UR summary

My point here is to be careful, and recognize that nothing is guaranteed in the points & miles arena. Availability changes literally every second, so you can never be sure that incurring this fee for paying college tuition will “pay off” (so to speak). However, a $130 insurance policy for expediting a sign-up bonus may well be worth it.

Annual spend threshold

Another angle to consider is whether charging college expenses will help you meet an annual spend threshold to unlock additional benefits and rewards that wouldn’t be available otherwise. Again, the critical point here is that you wouldn’t be able to hit those thresholds in any way without incurring the fee for paying tuition. For example, consider the anniversary weekend night certificate provided with $10,000 in yearly spend on the Citi Hilton Reserve card. While you can definitely get a ton of value out of this free night, the threshold is low enough that you may be able to reach it anyway.

However, there are many other cards with bonuses that would otherwise be out of reach. Depending on your travel patterns, it may be worth incurring the fee to reach these thresholds.

The "Travel Together" companion ticket is one of several great benefits to the British Airways Visa.

The “Travel Together” companion ticket is one a great benefit of the British Airways Visa. You may want to charge your tuition to this card if you can take advantage of it.

One example of this is the British Airways travel together ticket offered to cardholders of the Chase British Airways Visa who spend $30,000 on the card in a calendar year. This basically works as a buy one, get one free award ticket: you redeem your Avios for a British Airways flight, and you can bring along a companion without using additional points. (Unfortunately, you still need to pay taxes & fees on the second ticket, which can be significant.) You also need to find availability, and as TPG found earlier this year, it isn’t always easy. Still, if you’re planning a trip to Europe for two and intend on using Avios, this could be a good option.

Again, you would want to compare the value you’re getting out of the travel together redemption with the fee you’d incur to pay tuition on your card. Let’s go back to the first example: a $10,000 tuition payment at the University of Florida (assuming you have the other $20,000 of the spending requirement covered). As calculated above, paying this with a credit card adds a fee of $260, so if you’re getting more than that out of a British Airways ticket, it could be worth your while.

For example, suppose you wanted to book a first class ticket for next year from New York to London-Heathrow. A round-trip flight would set you back 120,000 Avios plus $1204.44 in taxes & fees. Booking the same trip for two people would double that. As long as you can find availability for two (like there is on April 7-18), you would only need 120,000 Avios plus $2408.88 in taxes & fees:

British Airways award flight

If you didn’t have the travel together ticket (and didn’t have enough Avios for two redemptions), you would book yourself using 120,000 Avios (plus $1204.44) and then pay for your companion. Right now, those flights are pricing out at a cool $12,501.44 per person. When you remove the taxes & fees you would pay in either case, you’d be paying a $260 fee on the college tuition to save $11,297 in airfare. Even if you would never want to spend that amount of money out-of-pocket, this still represents a significant value, and if it wouldn’t be possible without charging the tuition, then incurring the fee makes sense.

Another example would be hitting a spend threshold on a Delta co-branded American Express card (see this post for more information on choosing the right one for you). Remember, this is the first year where Delta counts Medallion Qualification Dollars (MQDs) as a required component for earning (or retaining) status. However, this requirement is waived for any Delta American Express cardholders that spend at least $25,000 in a calendar year. If you’re short of an MQD threshold but could use the tuition payment to earn the MQD waiver, it might make sense to incur a fee to do so.

Everyday spend

The final scenario in which incurring a fee may make sense is when you value the points you would earn highly, or have a specific use in mind that would allow you to come out ahead. TPG just posted his August valuations of the various points & miles currencies out there, and you may have your own way of valuing specific points & miles. When a college charges a fee to use a credit card, it is in essence a buy miles transaction. Depending on the amount of that fee and the value of the points or miles that you earn, you may come out ahead.

Since Brian values Starwood points so highly, charging tuition to his SPG American Express may make sense.

Since Starpoints are so valuable, charging tuition to a SPG Amex card may make sense.

Let’s change things up a bit and look at a different institution: the University of Texas. According to the website of the Office of the Registrar, Texas charges a 1.75% convenience fee for paying tuition with a credit card. Let’s say that you have a $10,000 bill, and you decide to put it on your Starwood Preferred Guest Card from American Express. This transaction would incur a $175 fee, bringing your purchase total to $10,175. That would earn you 10,175 Starpoints. Using TPG’s August valuation, 10,175 Starpoints x $0.023 = $234.03. With this math, the fee makes sense, since you value the Starpoints earned ($244.02) more than the fee ($175).

This can also come into play with a specific redemption. For example, if you’re looking to spend New Year’s Eve in New York City, not only is availability limited, but also paid room rates are astronomical! However, you see that the W New York – Union Square has rooms available for 20,000 Starpoints (or $750) per night:

W Union Square

Your tuition payment would cover over half of that room rate (or $375). In this specific case, incurring the $175 fee essentially creates $375 in “value,” which is a big win in my book.

At the end of the day, we all have personal methods for valuing miles, and your specific needs may make it worthwhile to pay a fee in order to use a credit card towards college tuition. If you’re fortunate enough to have a college that doesn’t tack on any fees for using a credit card, take advantage of it! More and more institutions are moving away from this arrangement, so that little perk may not be around for much longer. The most important step is to be informed. Investigate your school’s payment policies, and if there’s a fee, crunch the numbers (like I do above) to see if charging tuition makes sense. You might be surprised by what you find out.

Have you charged tuition or other college expenses to a credit card? Are you thinking about doing so for the coming school year, but not sure if it’s a good idea? Please share your feedback and questions in the comments below!

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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  • alexk512

    Thank you TPG and Nick for the post! I asked for this and it helps A LOT! Appreciate everything you do.

  • Matthew Ender

    For the Travel-Together ticket — is it only on BA operated flights? Or any flight you book with Avios? I’m wondering about using it for BOS-DUB on Aer Lingus.

  • JRodg

    Back in the day, my parents consistently paid college tuition for three children with a credit card. I believe they used an AA or US Airways card. As a result, this strategy basically netted them 2 free round-trip tickets to the Caribbean every January for many years.

  • BubbaJoe123

    “If you can shift fee-free spending from other cards over those three months, that is obviously preferable to paying the 2.6% fee”
    You’re missing something – what you would have gotten from other cards by doing that spending on those cards. Bottom line, all spending is fungible. Unless there’s no way you can spend enough to get a signup bonus (or tier bonus, such as the spend $30k get a 2-4-1 BA voucher) without paying a fee, it NEVER makes sense to use a credit card where the fee exceeds the value of the points. Look below, for example.
    Say you use the Fidelity Amex every day, so you’re getting 2% back on everything. Your normal spend is $5k/month. You need to do a $10k spend over three months to get 50k UR points on a new Chase Ink. You have the option of paying a $10k tuition bill with your credit card, at a 2.6% fee, or paying by check, with zero fee.
    Scenario 1: Pay tuition on the credit card. In this case, you get 60k UR points, pay $260 in fees, and get $300 in cash back ($5k/month * 3 months * 2%) from Fidelity. Net/net, you’re getting 60k UR points, plus $40 in cash.
    Scenario 2: Pay tuition by check, use the new card for $10k in regular spend. In this case, you get the 60k UR points (50k signup plus 10k for the $10k in spend), plus $100 cash back ($5k remaining regular spend * 2%).
    Bottom line, since the 2.6% fee exceeds the value of the points or cashback you’d be getting with the spend, it doesn’t make sense to use a card for the tuition.

  • TomCA

    Another suggestion (one which I use and you don’t mention) – if your college accepts American Express credit card payments then double-dip by purchasing AmEx gift cards through TopCashback (2% to 3% rebated) using a points-earning AmEx credit card (SPG or Hilton would be my preference, but ALWAYS use an AmEx ONLY so as not to incur cash advance fees from Visa or MC), and then pay the tuition with the gift card.

    So Total Tuition Costs:
    $4866.18 tuition payment
    + $133.82 in credit card fees
    = $5000

    AmEx Card net cost:
    $5000 face value
    + $16.85 fee/shipping
    - $150.51 rebate
    = $4866.34

    This essentially negates the credit card fee, PLUS you get the points value of 0.023 x 5000 = $115 (in the SPG example above)!

  • Theo

    My college does not accept credit cards at all, but if I had a $10,000 tuition bill due and had the money available in my checking account, couldn’t I use my Chase United Explorer to buy 20 $500 visa gift cards (which are treated as debit cards? – a method my school does allow for payment) for a total of ~$10,100. This would net me 10,100 miles for a cost of $100, or 0.99 cents per mile, which seems like a pretty good deal for United miles to me. I have a United, a US Airways, and an AA card. Would anyone have a suggestion as to which card would be most advantageous to use if I don’t have a specific travel goal currently in mind (generally saving up for hopefully eventual premium class international redemptions)? I currently have 65K UA, 41K USAirways, and 55K AA, if that info is relevant.

  • Theo

    Also, I don’t think I’ll be able to hit any of the yearly spending amounts for increased benefits ($25K for 10,000 additional UA miles, etc), even with the tuition payment taken into account.

  • Marnie

    While my kiddo isn’t in college yet (I have 16 years to go), I do pay for her daycare on my Hyatt card every month. That’s automatically 18000 points a year – I have 2 more years to go.

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  • http://www.McCoolTravel.com Charles McCool

    I must start paying attention to these posts. We kids are starting senior year. Yes, kidSSSSS. I have 2 starting college NEXT year.

  • Nick Ewen

    You are absolutely right. Not sure where I recommend using a credit card to pay tuition where the fee exceeds the value of the points earned. In your example above, change the 2.6% fee to the 1.75% fee charged by the University of Texas. The fees drop to $175, which means that scenario 1 gets you 60k UR points (well actually 60,175 with the fee) plus $300 cash back, so $125 net. Scenario 2 is identical to your figuring, so $100 net. In this case, it does make sense to pay the tuition with the card.

  • Nick Ewen

    UGH, I am so jealous. My wife and I are expecting our first in November, and the daycare in which we have already enrolled her doesn’t take cards. That would be a nice pop of points!

  • Nick Ewen

    I have friends’ parents that did this too (before colleges wised up about the fees!). One in particular would accrue US miles and, coupled with his frequent international business travel, would be able to take the family on great vacations.

  • Nick Ewen

    Unfortunately it is only for BA flights. I WISH you could use it on Aer Lingus!

  • Nick Ewen

    Glad to help. Thanks for reading!

  • BubbaJoe123

    Absolutely. Bottom line is, if the fee is less than the value of the points, use a card. If the fee is higher, pay by check. Your regular spend doesn’t figure into it.

  • Joe

    One very important point the author missed… You can’t discharge student loan debt, but you can discharge credit card debt.

  • PJ

    isn’t this down to the simple fact and truth?
    ~ 20K spending with 1.75% fees is $350 however if spreading payment on AS MANY different cards : let me grab United Explorer ( 2Kspend for 5oK+5K) British Airways (2K with fees 95 for 50K) Marriott( 2K spend with 70K plus one free night ) Barclays (3K spend to get back ~500 Travel reimbursement ) Carlson Blue ( 2.5K for 85K ) Southwest (2K + 69/99 fees for 50 K rapid rewards ) Sapphire Preferred ( 3K for 45K ) Hyatt ( 1K for anywhere Hyatt nights ) Capital one Venture ( 3K for 40K) Can anybody add up how much are those sign on bonus worth?
    By the way, I am trying to talk my college classmate for spreading an 20K jewelry purchase into AS MANY CARDS ( NOT just one card) as outlined above..

  • PJ

    oh back old days, Uncle let us buy I bonds with Credit cards I was not clever enough to spead 60K genuine purchases into AS MANY CARDS..

  • Raphael

    Tpg and nick where did u guys go to college????

  • Artpen100

    Whether the fees exceed the value of the points earned is the question, but in my case it is an easy answer. Since I use the points exclusively for either upgrades from international economy for miles or for international saver business class travel, I value them at anywhere from 4.5 cents a mile (typical for a saver award) up to 10 cents per mile (if I can get an upgrade that takes my 2K economy ticket up to a 6k RT international business ticket). And that is even before playing the bonus game with different cards, which I have done, though only occasionally. So I have put my kids’ school tuition on credit cards for fees, and think it is worth it. I really try to minimize cash and maximize the use of the cards, though I pay all of them off each month.

  • Kevin

    We’re going to be making $20-25k in payments on student loan debt over the next 6 months or so. Has anyone found a good solution for earning points on payments to Sallie Mae that doesn’t involve buying gift cards? Would love to get points, but not worth it to me to have to buy 40-50 $500 cards.

  • Allen

    The public colleges in my state (MN) accept payment via credit card and NO fee. Better yet, you can pay your tuition early with a credit card before financial aid or tuition reimbursement is processed. Later, once the financial aid or tuition reimbursement is processed, the colleges send you a check in the mail for the difference. This year they enacted a policy where they will credit the difference back to your credit card, so the way around that is to process the payment on a card you were about to close because the AF came up (etc.), and after the payment posts, cancel the card, so the school has no choice but send you a check because the card account is closed.

  • Nick Ewen

    That would be a TON of bonus points, but keep in mind that the chances of getting approved for all of those cards within a couple months of each other is essentially non existent (especially because I think I count 6 cards from Chase alone). Would be nice, and those points would CLEARLY outweigh the fees associated with the tuition payment, but probably not really a feasible option.

    The jewelry payment is another interesting example, but again, you’ll likely be limited to a few cards. Also, as I mention in the post, just make sure that your friend pays off the entire balance to avoid interest charges. I know that when I bought my wife’s engagement ring, I didn’t have that amount of cash sitting around, so I did the store’s interest-free account instead. Definitely a good way to hit those minimum spend levels though!

  • Nick Ewen

    True, but I would NEVER suggest doing this if you are going to carry a balance from month to month. Regardless of whether there is a fee to charge tuition to a credit card, it should only be done when the balance can be paid off in full.

  • Nick Ewen

    Not sure about TPG but I went to Wake Forest for undergrad and then UNLV and Florida for graduate school.

  • thepointsguy

    University of Pittsburgh!

  • Nick Ewen

    And this is what I try to get my friends to understand all the time! I cringe when I see them pulling out 20′s or 50′s to pay for dinner when I have the Chase Sapphire Preferred. Anything and everything that can be charged to a card should be. As long as you value the points more (or significantly more in your case!) than any fees you’d pay on college tuition charges, go for it!

  • http://www.linkedin.com/in/yoavious/ Yo’Av

    I’ve just used your double-dip tip to pay my rent! I got a bunch of bunch of Membership Rewards points out of it and 3% TopCashback rebate (they’re reducing the rebate rate tomorrow). Thank you!

  • JD

    This is awesome!!
    Too bad I already paid my sons fall tuition :(…
    But Spring I will do this, thanks for sharing!

  • JD

    ? –
    Do the schools charge a fee to use the Gift cards since the Gift cards are credit card?

  • JennaJam

    I’m starting graduate school which does NOT charge a credit card fee :) But I’m wondering what cards to apply for and how to space this out. I only have one credit card, United Visa. I’m thinking about applying for the southwest credit card (currently on bonus for 2 free roundtrip flights) and one other in a couple of months. Suggestions?? PS. I plan to pay off the cards in full every month using my education loans.

  • TomCA

    They do (2.75% in my case at UC), but using this method I come out well ahead in terms of points earning…

  • TomCA

    You’re welcome … and since the TopCashback AmEx rebate varies from time to time, I try to only pick them up when they are at the top rate, usually 3%, but in a pinch I’ll get them at 2% … still a “net positive”!

  • TomCA

    AmEx gift cards in limited designs (like the basic gold design) come in up to $3000 denominations – don’t waste your time, and don’t pay the extra purchase fees, for smaller denominations!

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