The Hidden Costs of Paying for College with a Credit Card

Convenience Fees and Making Informed Payment Decisions

Paying for college with a credit card might seem like an enticing strategy. After all, your card probably offers generous air miles or points for every dollar you spend, and with the mother of all bills to pay for, why not take advantage of the rewards? You might think, “Put college on the card, and I’ll get to travel the planet for free.”

The Convenience Fee

Like many ingenious schemes, this one has a significant drawback: the convenience fee. This processing surcharge, tacked on by credit card companies, can be very expensive for you while being profitable for them.

In a 2016 survey by CreditCards.com of 300 of the nation’s largest public, private, and community colleges, it was found that 255 of them (85%) accept credit cards for tuition payments under certain circumstances.

The Catch: Convenience Fees

Here’s the catch: 145 of these institutions, or 57%, impose convenience fees averaging 2.62%. This fee poses a major impediment since most cash-back offers attached to credit cards range from 1% to 2%. A 2.62% convenience fee not only negates any card reward but costs you more.

Colleges and Convenience Fees

+Students and their parents are customers, and colleges and universities aim to make it as easy as possible for them to pay their bills. However, they balk at absorbing the convenience fee themselves, preferring to add it to the bill.

Most people who use credit cards for routine purchases never encounter a convenience fee because retailers build the fees into their charges. Most academic institutions, however, have two prices: one for those who pay with a check and another for credit card users.

The CreditCards.com survey highlighted that policies vary across institutions. Of 100 community colleges surveyed, 97% accepted credit cards, and only 8% charged convenience fees. In contrast, 93% of public universities and 77% of private schools that accepted cards added convenience fees.

Usage Statistics

Paying college bills with credit cards remains unusual. Just 2% of parents and 5% of students use them for tuition, even as the number of institutions accepting them slowly grows.

Important Questions to Ask

If you’re tempted to use a credit card for tuition, it's essential to do some research:

1. Ask About Convenience Fees: Always ask whether the school charges a convenience fee and how much it is. Some colleges charge a minimum fee for any transaction, while others add a percentage cost.
2. Inquire About Debit Card Fees: Some schools treat debit cards like credit cards, adding a convenience fee to the total. Make sure to query about these fees.
3. Refund Policies: Ask if you can get your money back if you drop a course. Some schools will refund your tuition but not the convenience fee.
4. International Credit Cards: If you plan to use an international credit card, find out whether the convenience fee will be higher.
5. Restrictions on Credit Card Use: Some universities allow students in certain divisions, such as graduate schools, to pay tuition with credit cards but prohibit it for undergraduate courses.

Financing College Costs with Credit Cards

So far, we’ve assumed that you would only want to use a credit card to collect reward points or rebate offers. However, some might be tempted to pay with plastic to finance college costs. 

If you don’t have the money to pay tuition at the start of the semester but expect a commission check or bonus by mid-terms, putting the bill on your credit card might seem like a viable option.

Conclusion

While paying for college with a credit card can offer rewards, it's crucial to be aware of the hidden costs, primarily the convenience fees. By asking the right questions and understanding the potential drawbacks, you can make informed decisions that best support your financial well-being and academic goals.

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