Credit cards are becoming more widely accepted as a form of payment for college expenses, but is paying tuition with a credit card actually a good idea?
If you’re a college student, there’s a good chance you may not even qualify for a high enough credit limit to handle tuition costs, as student credit cards typically start with lower limits. However, if you’re an authorized user on a parent’s account or you are a parent handling these costs, using a credit card to pay tuition could be a good rewards strategy if done wisely. But do the pros outweigh the cons? We weigh the benefits with the potential risks.
Risks and benefits of paying for college with a credit card
Convenience fees
If your university offers the option to pay for tuition with a credit card, there’s a good chance they will tack a convenience fee on to your tuition cost. These fees tend to average around 2%-3%. Knowing if and how much you’ll be charged in fees can help determine whether or not paying tuition with a credit card will outweigh the costs in every benefit scenario presented below. If you’re considering paying college tuition with a credit card, knowing this number is a crucial first step in making a wise decision.
Credit card rewards
If you have a credit card that earns rewards you might be thinking, “Wouldn’t it make sense to put a large purchase on my card so I can earn extra points?” Possibly, but not necessarily. Again, it all comes back to convenience fees.
If your card only earns 1% on “other” purchases (which is likely the category tuition would fall under) and your college charges a 2% fee on credit card payments, the fee would outweigh any rewards you might earn.
Some fees may be lower than 2% though, or you might have a card that earns a bit extra on “other” purchases. Branded hotel credit cards in particular usually offer a bit more on “other” expenses. Some Hilton credit cards, for example, offer three points per dollar on qualifying purchases outside of bonus categories. If you’re loyal to the Hilton brand, using one of these cards to pay tuition could benefit you.
Other more general credit cards, such as the CardName discontinued, offer a higher flat-rate reward on all purchases. This card offers two miles per dollar spent, so it may be a good option for paying tuition if the convenience fee is less than 2%.
Hotel cards are a bit specific though, and on average, convenience fees seem to start at 2%, so even if you stand to earn some rewards, it likely isn’t worth the risk; that is, forgetting to pay your bill in full on time and facing a high APR on that expense.
➤ LEARN MORE:Guide to credit card rewards: Points, miles, vs. cash back
Credit card welcome bonuses
Using a credit card to pay for tuition, whether in full or partially, can be a strategic move if you’re working towards earning a credit card welcome bonus. Many credit cards offer substantial welcome bonuses to new cardholders who meet a certain spending requirement within an initial period. Reaching this spending threshold can sometimes be challenging, and a significant expense like tuition can help you achieve it more easily.
Even when considering the convenience fees that some institutions charge for credit card payments, this approach can still be beneficial. The key is to ensure that the value of the welcome bonus you receive outweighs any fees incurred. It’s crucial to calculate if the rewards earned from the bonus will make the transaction worthwhile after factoring in these charges.
However, this strategy is only advantageous if you are able to pay your credit card balance in full by the due date. If you carry a balance and incur interest charges, these costs can quickly negate any rewards or benefits gained from the welcome bonus.
It’s also important to consider the overall fit of the credit card with your spending habits and lifestyle. Not all welcome bonuses are equally generous, nor do they all require the same level of spending to qualify. Before committing to this strategy, make sure the card’s spending requirements are attainable for you and that the potential payoff from the bonus will genuinely exceed any associated fees.
Student loan interest rates vs. credit card interest rates
According to the U.S. Department of Education, the average cost of federal loans disbursed on or after July 1, 2023, and before July 1, 2024 average between 5.50%-8.05%. Not even the best credit card interest rates come close to this. Depending on the credit card, interest rates can range anywhere from upper single digits well into the high 20s. These numbers make it immediately clear that a credit card should never be used as a substitute for a student loan if you anticipate carrying a balance. Even if you have to pay in installments, fees for doing this are likely to be much less than credit card convenience fees, and no bonus offer or amount of rewards will outweigh credit card interest charges if you can’t pay your credit card bill in full by the time it’s due.
With that said, there is one option that could make sense if you want to use a credit card to pay tuition but need a little extra time to pay off a balance, and that’s to use a credit card offering a 0% intro APR period.
Introductory 0% APR credit cards
Credits cards offering a 0% intro APR period on new purchases can act, for a time, like an interest-free loan. These offers only make sense, however, if you pay off your balance in full before the promotional period expires.
Take the card_name for example. It offers new cardholders an introductory period of intro_apr_duration 0% APR on new purchases and balance transfers (then RegAPR). The card also earns 5% cash back on travel purchased through Chase Travel℠; 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery services; and 1.5% on all other purchases. So using the same $15,000 payment/2% fee scenario from above, if you use this card within your first three months of membership to make a tuition payment, you stand to earn $225 in base rewards. Additionally, new cardholders can earn signup_reward once spending signup_bonus_spend_amount within the first three months of opening an account, so, if that’s you, you could ultimately earn $475 back on this payment. Subtracting the $300 fee, you’d only end up pocketing $175, BUT, you also have intro_apr_duration to pay off the balance interest free. This can be a smart move if you know you’re able to pay the balance before the promotional period expires. Otherwise, you’re looking at paying RegAPR on your remaining balance, which is a far worse rate than that of a federal student loan.
➤ LEARN MORE:Best practices: Saving with an intro 0% APR card
Will paying for college with a card hurt your credit?
It shouldn’t, as long as you’re paying your bill in full and on time. It could take a small temporary dip, however, if you use up too much of your available credit. Credit utilization counts for 30% of your credit score, so if you use a lot of your available credit to make a payment and don’t pay it off quickly, you might see your score drop. Rest assured though that it shouldn’t drop by much, or stay that way for long. A smart approach would be to use your card to make the payment, and then pay it off immediately.
Whereas a rewards credit card could prove beneficial for parents handling tuition costs, students looking for a credit card for other related, smaller expenses such as library fines, parking tickets, groceries or gas purchases, would likely fare better with a credit card designed specifically for students. These credit cards are often easier for students to qualify for, and are a good way to build credit.
Having a credit card and using it responsibly can help a student build their credit profile. This may help them better qualify for other kinds of credit, including private student loans. On the other hand, amassing too much credit card debt and missing payments can make it very difficult to qualify for other credit products, including private student loans.
Parents might also consider making their children authorized users on their account as certain credit cards could be helpful for students to have on hand. The CardName, for example, earns unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores (excluding superstores like Walmart and Target); unlimited 5% cash back on hotels and rental cars booked through Capital One Travel (terms apply); 8% cash back on Capital One Entertainment purchases; and 1% cash back on all other purchases. These are categories that students spend often in, so using a card like this responsibly can help students build their credit, while parents reap the rewards.
➤ LEARN MORE:Guide to adding children as credit card authorized users
How to find out if a college accepts credit cards
Now that you know the risks and benefits of paying for college with a credit card, if you’re still eager to do so, the best way to find out if a college accepts credit cards is to contact your school’s bursar’s office. They’ll be able to tell you if the school accepts credit cards as a form of tuition payment, and provide you with information about any associated fees.
