August 17, 2009

Should You Pay College Tuition with a Credit Card?

I was a bit surprised to read this article that said a National Association of College and University Business Officers (NACUBO) survey found that "of 2,000 institutions revealed that 94 percent of the respondents accept credit card payments for tuition and fees". This article said that they found that a full 30% of students had used credit cards to pay tuition with an average of $2200 in such charges. It never even occurred to me that people put their tuition on a credit card, but apparently its a pretty common occurrence.

I guess most people would want to pay tuition with a credit card for the same reasons they pay everything else with a credit card. Primary reasons people use credit cards : they don't have the cash or they like the convenience.

Credit Cards Instead of Student Loans

Some people might want to use credit cards because they think getting a student loan is difficult or the interest is costly.

The average credit card interest rate is 14.9%. Rates on student cards are at 15.3%.

Student loan rates at SallieMae are : 3.4% to 6.8% for Stafford or 8.5% for PLUS loans. Or private student loans have variable rates that range from LIBOR +2% to LIBOR +14%. Right n
The 1 month LIBOR rate is currently a very low 0.27% so you can actually get private student loans as low as 2.5% level.

Of course the rates charged on credit cards and some student loans will depend on your credit worthiness. If you can qualify for a super low interest rate on a credit card then you should also be able to get a low rate on a student loan.

In virtually any case, interest rates on student loans are lower than credit card rates.

I bet many people don't get student loans since they didn't apply for financial aid. Well the financial aid application isn't that hard to fill out and should be well worth the effort for most people. Most people can at least qualify for the subsidized government loans if not free grants or tuition waivers.

Paying with credit cards for rewards or points.

If your primary reason for wanting to use a credit card to pay tuition is to get rewards or points then you should be wary of fees. Some universities charge a 'convenience fee'. That fee could be a flat amount or a % of the total. This US News article from back in 2006 said that about half of public universities charged a fee for credit cards. Its probably now even higher %. Typically a fee will be in the 2% range which would generally exceed the value of most rewards or points programs.

For the overwhelming majority of people you'll be better off paying not paying your tuition with a credit card.

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