Any of you that have been following this blog probably already know where I stand in regard to paying tuition expenses with a credit card. The quick answer is never to do it. I don’t care how enticing it may be, a credit card is probably the worst way to finance your education (even worse than a private loan).
That being said, over the years I have met a number of families that consistently pay their tuition bills by credit card semester after semester. The difference in their situation is that they pay their credit card balance off each month out of savings or discretionary income. You may wonder why they do this and outside of the convenience factor the sole reason is to get points for air miles, cash back dividends, or some other benefit their card is providing them each time they use it. For these families, it would not be uncommon to see them charge $15,000 a semester on their credit cards. That is a lot of air miles!
The families I have spoken with say that they use the air miles to fly their son or daughter home for winter break, important holidays, or for the summer. Others say that they use the cash back bonuses to cover textbook expenses accrued during the year. Whatever the motivator, they have tapped into a way to actually benefit from paying a large tuition bill that they would have to pay regardless.
What most of you may or may not know though is that colleges and universities across the nation are making a movement to no longer accept credit cards for tuition payments. At the very least, they are entering into contracts with third party payment processors that are accepting your credit card payments but charging you a “convenience fee” for the transaction. With these fees hovering around 3%, you can see that any benefit (air miles, cash back, etc.) is no longer a benefit.
The initiative for colleges and universities to stop taking credit cards is simply a matter of cost. Every time a school accepts and processes your credit card payment they are charged a merchant fee by Visa,Mastercard , Discover, American Express, etc.. The merchant fee is usually around 2%. That does not sound like a lot but for a school processing $100 million dollars in tuition revenue this merchant fee could add up to $2 million dollars. Seems like a lot of cash just to be able to accept credit cards. For the colleges that don’t take credit cards or are making the switch to not accepting cards, I am hopeful that they will use this extra surplus of cash wisely and put it toward scholarships. My guess though is that each school will probably use the savings to fill any gaps in their budget.
Now for the “Silver Lining”
Legislation is adrift, and hopefully hitting the ground soon, that will minimize the amount of merchant fees that Visa, Mastercard, Discover and American Express can impose on educational institutions and not-for-profit organizations. This legislation is in the very early stages but appears to be gaining support. The big question is if this change in fees will promote more schools to accept credit cards or if the legislation will just be a way to provide additional savings to income stricken colleges and universities. I guess time will only tell.
As for air miles, cash back bonuses and the like, if this legislation goes through I can almost guarantee you that these benefits will not apply for any transactions taking place at fee reduced organizations.
So.. for now… pay with a credit card if your school accepts it and you get some sort of benefit from doing so. However, if you can’t pay your credit card balance off each month, you should definitely exhaust all other options before choosing this route.