Paying College Tuition on a Credit Card: Fees vs. Rewards
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The dog days of summer are here, bringing warm temperatures and fall-semester tuition bills for millions of students. Even as higher education costs have been steadily increasing over the last two decades, many college and universities now accept credit cards. Paying by card, however, isn’t always free. Should you pull out your travel-rewards credit card or hand over the traditional check? In this post, we’ll help you answer that question.
What you need to know about paying tuition with a credit card
Before deciding whether to swipe your card for your kid’s college, it’s important to do your research first. Is paying by credit card even an option? If so, are there fees associated with it? A call to the college finance office or registrar should do the trick, although many schools 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 site 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)
- 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 charged 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 (obviously) out of luck. Take a look at the FAQ from the cashier’s office at the University of California-Santa Cruz:
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 the number-one commandment for travel-rewards credit cards. If you can’t and end up carrying 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. I went through the US News & World Reports list of the top 100 national universities in the country (technically 102 schools because of a six-way tie for 97th place) and found just five that allow no-fee credit card payments for tuition:
- University of Southern California
- State University of New York (SUNY) at Binghamton
- SUNY-Stony Brook
- SUNY-College of Environmental Science and Forestry
(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, however, other possibilities for paying fees by credit card that 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 you can pay a $12 flat fee to use a Discover card! Do your research to see if you’re eligible for these low or no-fee credit card payments.
Where things get more complicated is the third category. Of the 102 top national universities, 65 allow payments by credit card 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? 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 within the first three months of account opening (easy enough). You can then earn an additional 50,000 bonus Avios after you spend $20,000 total on purchases within your first year of account opening (a bit harder). Based on TPG’s most recent valuations, the total haul of Avios is worth $1,500. You can easily spend enough to earn the first 50,000 Avios, but the only way you could get the remaining 50,000 could be to charge 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 extra $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 spend). These 70,520 Avios are worth $1,057.80, more than covering the fee charged by the university.
Once again, however, this 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 ways, you’re much better off doing that and using a different method that won’t incur a fee to pay the tuition.
Earning a Threshold Bonus
Another time it may make sense to incur a fee for paying college tuition by card 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 US and bring a companion along by paying just the taxes and fees on his/her ticket. Even though this still requires a fairly large out-of-pocket expense, it could make sense, especially for premium-class redemptions.
For example, let’s say that you wanted to fly from Miami (MIA) to London (LHR) in business class next summer. At the time of writing, you and a companion could use Avios to fly out on Saturday, June 22, and return Wednesday, July 3. Under the normal redemption rates and with current exchange rates, this itinerary for two would set you back 250,000 Avios plus $2,706.68.
However, applying the Travel Together ticket to this itinerary would halve the number of Avios you’d need. Getting two round-trip business-class tickets to Europe for 125,000 points and ~$2,700 in taxes and fees would represent a decent value for many travelers.
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.
Timing Both a Welcome and Threshold Bonus
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.
The Southwest Rapid Rewards Priority Credit Card currently offers a sign-up bonus of 40,000 points after spending $1,000 on purchases in the first 3 months account is open. You’ll also receive 7,500 points on your card anniversary. The Companion Pass requires earning 125,000 qualifying points. The 40,000 bonus points for the credit card, as well as any points you earn through regular spending on the card, count toward Companion Pass qualification, so a hefty tuition payment on top of the sign-up bonus could help get you there quickly.
However, this gets even better if you time things right. Since the Companion Pass is valid for the rest of the year in which it 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.
As a result, you’ll want to wait to apply for the card until the late fall or early winter (November or December). Then, don’t spend anything on the card until your December statement closes. Once that happens, charge the tuition. When your January statement closes, you’ll earn the full 40,000 points plus the points earned for the tuition payment(s). Voila! You’ll be close to earning a Companion Pass valid for almost two years.
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 these payments for college are the very first ones you make after getting approved for the card and both appear on your January statement for the Southwest Rapid Rewards Priority Credit Card, you’d take home the following:
- 45,144 Rapid Rewards points from the purchases
- 40,000 Rapid Rewards points from spending $12,000 in the first 12 months your account is open
Your total haul is thus 85,144 points, which gets you more than three-quarters of the way to a Companion Pass. If you add in a few flights home for the holidays, spending on groceries and dining and dorm decor for both kids, you can easily reach 125,000 points. And since you timed it perfectly and all of these earnings posted to your Rapid Rewards account in January, you’ll be able to enjoy the Companion Pass for almost two years. Would you pay a one-time fee of $1,144 for a Companion Pass valid for roughly 23 months? I know I would.
Earning More Valuable Points
As we’ve seen, you should consider swiping a card for tuition 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 an idea 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 the cash-back earning into full Ultimate Rewards points. Once you convert your spending to points, you are earning 1.5 points per dollar spent on every purchase. Since we peg Ultimate Rewards points at 2.1 cents apiece, you’re essentially getting a return of 3.15%. If the fee for using a credit card for tuition is less than this amount, you’ll come out ahead by using your Freedom Unlimited.
- The Business Platinum Card® from American Express: This may seem strange, since the Amex Business Platinum only offers one Membership Rewards point per dollar spent. However, it also gives you 50% more points on purchases of $5,000 or more, so if your tuition payment is above this amount, you’ll earn 1.5 points per dollar spent. We peg Membership Rewards points at 1.9 cents apiece, so you’d get a return of 2.85%. Again, if the fee for using a card is less than this, go ahead and swipe the card.
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-savings fund. As a result, financial aid packages — including both grants and loans — have become ubiquitous, with roughly 85% of first-time, degree-seeking undergraduates at four-year institutions receiving some form of direct aid in the 2016-2017 school year. Student loan interest rates for the 2019-2020 school year will be 4.53%.
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% purchase APRs at the time of writing:
- Amex EveryDay® Credit Card from American Express: 0% APR for 15 months on purchases and balance transfers, then a variable rate of 12.99% to 23.99%, plus 1 Membership Rewards point per dollar spent on tuition.
- Chase Freedom: (No longer open to new applicants) 0% APR for 15 months on purchases, then a variable rate of 14.99% – 23.74%, plus 1% cash back (or 1 Ultimate Rewards point per dollar spent) on tuition.
- Capital One® Quicksilver® Cash Rewards Credit Card: 0% APR for 15 months on purchases, then a variable APR of 15.49% – 25.49% applies, plus $200 cash bonus when you spend $500 within three months from opening and 1.5% cash back on tuition.
- American Express Cash Magnet® Card: 0% APR for 15 months on purchases from the date of account opening, then a variable rate, currently 13.99% to 23.99%. (see rates and fees), plus $150 statement credit after spending $1,000 within the three months of opening and 1.5% cash back on tuition.
The information for the Amex EveryDay, 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 example of a 2.6% fee for paying tuition with a credit card. With four of these 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 you 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 points-and-miles veteran, you’re looking for any way to maximize your daily spending through travel rewards credit cards. Around this time of year, these efforts could shift to college tuition payments. 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 can use your card — and even if you’ll incur a fee for using a card — there may be instances where it makes sense to go ahead and swipe.
Intern Elizabeth Lund updated this report on July 25, 2019.
Featured image courtesy of Kenyon College / Facebook.
For rates and fees of the Amex Magnet card, click here.
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