Paying college tuition on a credit card: Fees vs. rewards
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Higher education costs have been steadily increasing over the last two decades, making tuition a sizeable expense for many families. While many college and universities accept credit cards for these payments, it isn’t always free to do so. If you’re responsible for a tuition payment, should you pull out your trusted travel rewards credit card or opt for paying with a check or withdrawal from your bank account? In this post, we’ll help you answer that very question.
Before getting into when it makes sense (and when it doesn’t make sense) to swipe your card for your kid’s tuition payment, it’s important for you to first do your research. Is this even an option? If so, are there fees associated with it? A quick call to the finance office or registrar should do the trick, though many will post details of their payment options online as well. If you type “(Insert college name here) tuition credit card” into your favorite search engine, you’ll likely see the applicable page in the first few results.
Generally speaking, the college or university in question will fall into one of three categories:
- Tuition can’t be paid with a credit card (like my undergraduate alma mater, Wake Forest University)
- Tuition can be paid with a credit card with no additional fee (like the University of Nevada – Las Vegas, from which I obtained my M.Ed.)
- Tuition can be paid with a credit card with an additional fee (like the 2.6% fee charges by the University of Florida, where I earned my M.B.A.)
The first two options are a no-brainer. If you can’t use a card at all, you’re out of luck. Several institutions impose these restrictions. In fact, take a look at the applicable FAQ from the Cashier’s Office at the University of California – Santa Cruz:
Universities that don’t charge credit card processing fees
On the other hand, if you can pay your tuition with a credit card and won’t incur a fee, then you absolutely should do it and be grateful that you can! Just be sure that you are able to pay off the entire amount when your statement comes due, which is my number one commandment for travel rewards credit cards. If you can’t and must carry a balance, any interest and finance charges will easily cancel out the points or miles you’d earn on the purchase.
Unfortunately, the number of schools that fall into this second category is relatively small. In fact, I went through U.S. News & World Reports’ list of the top 100 national universities in the country and found just five that allow no-fee credit card payments for tuition:
- University of Southern California
- State University of New York (SUNY) – Binghamton
- SUNY – Stony Brook
- SUNY – College of Environmental Science and Forestry
- SUNY – Buffalo
(Note: It appears that most if not all state universities in New York don’t charge fees for paying with a card, so if you’re looking at or already attend one these schools, you’re in luck!)
There are other exceptions I found for certain classes of students. For example, part-time students at Boston University can pay via credit card with no fee, as can most graduate students at Northeastern and Lehigh. The strangest policy I came across comes from the University of California, Davis, where MBA students can pay a $12 flat fee to use a (wait for it) Discover card. As noted above, make sure to do your research to see if you’re eligible for these low fee or no fee credit card payments.
Where things get more complicated is the third category. Of the top national universities, 65 allow payments with fees that range from 2% (Penn State University, Brigham Young University and the University of Maryland) to 2.99% (Brandeis University). Should you incur a fee to pay college tuition with a credit card? As is the case with much of what we cover here at The Points Guy, the answer isn’t absolute: “Yes, but only in certain circumstances.”
Let’s take a look at where it would make sense.
Earning a Welcome Bonus
The first scenario under which you should consider paying tuition with a credit card involves credit card welcome bonuses. Many top travel rewards credit cards offer large amounts of points or miles for reaching a certain level of spending in a given timeframe. In some cases, your normal everyday spending may not be enough to get you there. If the only possible way of meeting the required minimum spending threshold to earn a bonus is to incur a fee on tuition payments, it could make sense to do so.
For example, let’s say that you were interested in the British Airways Visa Signature Card and its enhanced bonus of up to 100,000 Avios. You’d earn 50,000 bonus Avios after you spend $3,000 on purchases in within the first 3 months of account opening (easy enough). You can then earn an additional 50,000 bonus Avios after you spend $20,000 on purchases within your first year of account opening (a bit harder).
Based on TPG’s most recent valuations, each batch of 50,000 Avios is worth $750. While you can easily spend enough organically to earn the first 50,000 Avios, the only way you could get the remaining 50,000 may be by charging tuition to the card.
If the tuition payment in question is $20,000 and your university charges a 2.6% fee, this would tack on an $520. However, in doing so, you’d earn an additional 50,000 bonus Avios plus 20,520 Avios for the purchase itself (at the standard earning rate of 1 Avios per dollar spent). These 70,520 Avios are worth $1,057.80, more than covering the fee charged by the university.
Once again, his logic only applies if you have no other way to spend the required amount to earn the welcome bonus. If you can reach that threshold in other (fee-free) ways, you’re much better off doing that and using a different method to pay the tuition that won’t incur a fee.
Related Reading: Current best credit card offers
Earning a Threshold Bonus
Another time it may make sense to incur a fee for paying college tuition is when you’re trying to reach a threshold bonus. Let’s continue with the example of the British Airways Visa. One of the perks on the card is an annual Travel Together ticket that’s earned when you spend $30,000 or more in a calendar year.
Valid for two years from the date of issue, it allows you to redeem Avios on a round-trip, British Airways-operated flight from the U.S. and bring a companion along for just the cost of taxes and fees. Even though this still requires a fairly large out-of-pocket expense, it could make sense, especially for premium class redemptions.
If you have a tuition payment of exactly $30,000 that would incur the same 2.6% fee as the above example, you’d be paying an additional $780 to swipe the card. However, you’d also be taking home 30,780 Avios (worth $461.70), essentially making the cost of the Travel Together ticket just $318.30. If you can get at least that amount of value from this perk, the British Airways Visa could again make sense.
Earning a companion pass
Of course, you could leverage both of the above strategies at the same time to earn the full welcome bonus and the Travel Together ticket on the British Airways Visa card, but there’s an even more compelling option out there with some trickier timing. This won’t actually apply to the fall semester but would be a terrific option as you prepare to pay your tuition for next spring, and it involves one of the most valuable perks in the frequent flyer world: the Southwest Companion Pass.
In July 2018, Southwest added a new credit card to its line of co-branded products with Chase: The Southwest Rapid Rewards Priority Credit Card. The card offers 40,000 points after you spend $1,000 on purchases in the first 3 months. This bonus as well as any points you earn through regular spending on the card count towards Companion Pass qualification. So a hefty tuition payment could get you almost all of the way there.
However, this gets even better if you time things right. Since the Companion Pass is valid for the rest of the year in which is was earned and the entire following year, you should always try to earn the 125,000 qualifying points as early as possible in a calendar year.
To illustrate this, let’s say you have two children with $22,000 tuition payments each semester that can be paid with a credit card but are subject to a 2.6% fee. This amounts to a total spend of $45,144. If you charge these tuition payments to your credit card during two semesters, you’d take home the following:
- 90,288 Rapid Rewards points from the purchases
- 40,000 Rapid Rewards points from spending $1,000 in the first 3 months
Your total haul is thus 130,288 points. If you time it perfectly and all of these earnings post to your Rapid Rewards account in January, you’ll be able to enjoy the Companion Pass for almost two years. Would you pay $2,288 for points worth $1,954.32 a Companion Pass valid for roughly 23 months? I know I would!
Related Reading: A guide to airline credit card companion passes
Earning More Valuable Points
Another time you should consider swiping a card for tuition is when the points or miles you’d earn are more valuable than the fees you’ll incur. This is a very gray area, since everyone has his/her own way of valuing the various loyalty currencies out there.
A good place to start is our monthly valuations to at least get a ballpark of how much you can get out of your points and miles. However, keep in mind that these valuations typically apply to redeeming points for maximum value, especially when it comes to transferable point currencies, so the math may not make sense if you redeem your points directly.
Here are a couple of examples of when the points or miles you’d earn would outweigh the additional fee:
- Chase Freedom Unlimited: This card offers 1.5% cash back on all purchases, but if you also hold a “premium” card like the Chase Sapphire Reserve, you can convert those cash-back earning into full Ultimate Rewards points. This is (thus) equivalent to earning 1.5 points per dollar spent on every purchase. Since we peg Ultimate Rewards points at 2 cents apiece, you’re essentially getting a return of 3%. If the fee for using a credit card for tuition is less than this amount, you’ll come out ahead by using your Chase Freedom Unlimited.
- The Business Platinum Card® from American Express: This may seem strange on the surface, since the Amex Business Platinum only offers 1 Membership Rewards point per dollar spent. However, it also gives you 50% more points on purchases of $5,000 or more (up to 1 million additional points per year), so if your tuition payment is above this amount, you’ll earn 1.5 points per dollar spent. We peg Membership Rewards points at 2 cents apiece, so you’d get a return of 3%. Again, if the fee for using a card is less than this, go ahead and swipe the card. Terms apply.
As always, be sure to adjust these numbers based on your own valuations and evaluate you school’s credit card payment policy to determine whether it makes sense to incur the fee.
Utilizing an Introductory 0% APR Offer
The final time it makes sense to incur a fee on a credit card for tuition is decidedly less glamorous but nevertheless important. With the price of higher education so high, many parents aren’t able to cover a full semester’s tuition with cash in the bank or the money in a college fund. As a result, financial aid packages have become ubiquitous, with roughly 85% of first-time, degree-seeking undergraduates at four-year institutions receiving some form of aid in the 2016-2017 school year. However, student loans often come with high interest rates, with federal rates rising to 5.05% for the 2018-2019 school year.
This is where a new credit card with an introductory 0% APR offer can come into play. These cards will generally allow you an initial “grace period” in which to pay off your purchases with no interest before they become subject to standard rates. This can be a great option if you’ve exhausted the funds in a 529 college savings plan, don’t want your kids to be saddled with student debt and are able to finish paying off the entire balance before the promotional period ends. Bear in mind that these purchases are still eligible to earn points or miles too.
Here are a few cards with introductory 0% APRs at the time of writing:
- Blue Cash EveryDay® Card from American Express: 0% APR for 15 months from account opening on purchases, then a variable APR, 13.99% to 23.99%, plus 1 Membership Rewards point per dollar spent on tuition. Terms apply.
- Capital One® Quicksilver® Cash Rewards Credit Card: 0% APR for 15 months from account opening on purchases, then 15.49% – 25.49% variable APR after that. Plus 1.5% cash back.
- Chase Freedom: 0% APR for 15 months from account opening on purchases. After that, 14.99%–23.74% variable plus 1% cash back (or 1 Ultimate Rewards point per dollar spent) on tuition
- Chase Freedom Unlimited: 0% APR for 15 months from account opening on purchases, after the intro period, a variable APR of 14.99% – 23.74% plus 1.5% cash back (or 1.5 Ultimate Rewards points per dollar spent) on tuition.
The information for the Chase Freedom has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Let’s stick with the above example of a 2.6% fee for paying tuition with a credit card. With any of these four cards, you have 15 months to pay this balance off. Essentially you’re getting a 15-month interest free loan with a 2.6% up-front origination fee. If your only other option is to borrow the funds using traditional methods, you’ll likely find yourself paying far more in interest charges and fees.
Once again, let me reiterate that you must be able to pay off the full balance before the promotional period ends. Otherwise you’ll be subject to an APR that is much higher than the rate you’d get on just about any loan.
Whether you’re just getting started or are a grizzled points and miles veteran, you’re hopefully looking for any way to maximize your daily spending through travel rewards credit cards. Around this time of year, these efforts inevitably shift towards college tuition payments, though individual institutions may charge you for the privilege of swiping your favorite brand of plastic (or may prevent you from doing so entirely!). If you’ll incur a fee for using a card, there may be instances where it makes sense, and I hope this post has helped illustrate exactly when that’s the case!
Featured photo courtesy of the University of Illinois at Urbana-Champaign.