Earning a college degree is a great way to advance your education and broaden your job opportunities, but it can also put you into some of the most costly debt you will take on in your lifetime.
College tuition is expensive. College Board estimates that it costs $38,070 on average to earn a bachelor’s degree at a private university, and $10,740 to earn a degree at a state university. Americans today carry a staggering 1.76 trillion dollars in college debt.
When it comes time to start paying your tuition, it may be tempting to charge it to a credit card. Some colleges do allow this. And if you’re spending the money either way, shouldn’t you get some rewards back in the process? You might get rewards, says Bankrate’s credit card senior industry analyst Ted Rossman. But they’ll come at a steep price.
When does paying for college tuition with a credit card make sense?
The only time it might make sense to pay for tuition with a credit card is if you’re able to produce rewards that outweigh the fees — but that is no small feat. “If you’re using the payment to hit a sign-up bonus threshold, for example, and you couldn’t hit it with your regular spending, and the value of the bonus outweighs any fees you’re charged,” says Rossman. “Then it could make sense for certain cases.”
The key to making this work, though, is to pay the balance in full. “I think even going for a zero percent promotional rate is too risky because this could be a big charge, and the interest rate would skyrocket at the end of the term,” says Rossman. “Student loans have much more favorable interest rates and repayment terms than credit cards.”
When does paying for college tuition with a credit card not make sense?
It almost never makes sense. One reason is compounding interest. If you charge your tuition to a credit card and then don’t pay it off in full, the remaining balance will be subject to an APR that is much higher than any traditional student loan would charge.
On top of that, you get hit with fees. Colleges that accept credit cards will charge a processing fee to complete your payment. These fees are typically 2.5 percent or more of the tuition charge, which can add up quickly. To put that into perspective, if you’re charging $12,000 in tuition, you will pay an additional $300 just in fees.
“If you’re going to be charged, say, a 3 percent fee for using a credit card, that’s probably more than you could expect to earn in rewards,” says Rossman. “Also, this would be a very dangerous strategy if you end up carrying a balance, since the average credit card charges more than 18 percent interest.”
“I’d steer clear of this strategy,” says Rossman.
Better ways to pay for college tuition
Apply for financial aid
To apply for financial aid you will need to complete the Free Application for Federal Student Aid (FAFSA) every year to see how much aid you are eligible for. FAFSA allows the Department of Education to see how much aid you qualify for. Scholarships and financial aid can come in the form of grants, work-study programs, low interest loans and scholarships.
Explore scholarship options
FAFSA is not the only way to qualify for a scholarship. Many students can obtain partial or even full scholarships for academic success, athletics, extenuating circumstances such as a disability, being part of a protected minority class or falling below the federal poverty line, just to name a few. There are scholarships available from a wide variety of institutions, so do your research before paying your tuition in full.
The U.S. Department of Education offers tools to help you find and apply for scholarships you may qualify for.
See if your university offers installment payment plans
Lastly, if you can’t find a scholarship that fits your needs, consider reaching out to your university directly. Many institutions will offer installment plans to pay for your tuition in more manageable installments, rather than all at once.
The bottom line
While paying your tuition with a credit card is possible, it’s not the smartest financial move. While you can earn some decent rewards with the best student credit cards, those will disappear fast if you carry a balance. On top of the interest you’ll pay on that balance, colleges that allow card payments charge processing fees for each payment.
In fact, many college students end up in credit card debt, as well as student loan debt. In the long run, a better option is to explore scholarships and financial aid not subject to high interest rates.