Many people see college as an investment of time and energy that can help them get ahead. By earning a college degree in an in-demand field, they can position themselves for a profitable career that will stand the test of time.
Unfortunately, college takes more than time and energy; it also requires a considerable financial investment. Consider the fact that the average tuition paid for the 2020-2021 school year was $10,740 nationally for four-year public universities. When you add other costs like books and room and board, the annual costs rise to $27,330 per year. And even two-year public schools cost students an average of $18,830 a year when you add in the extras that make college attendance possible.
Now here’s the good news: if you’re lucky enough to have enough money to pay for tuition, it’s possible to benefit from this sudden increase in your annual expenses. With a cash back or travel rewards credit card, you can turn tuition into cash in the bank, gift cards, airline miles, and more.
But, should you pay tuition with a credit card? Now, that’s an entirely different question. It is important to understand that there is a time and place to charge tuition. In short, it is only beneficial if you have the money to pay the full tuition and you have no plans to take out a student loan.
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If you need to borrow money to pay for college, you’d be better off taking advantage of federal student loans that offer low interest rates and consumer protections like deferment and forbearance as well as income-based repayment plans.
In the end, borrowing money for school by credit card would be expensive. The average interest rate on credit cards is now over 18%, but the average rate on many federal student loans is just over 4%.
That said, instances where it may make sense to pay tuition with a credit card include:
1. Your school doesn’t charge a fee when you use the credit to pay tuition
One of the main factors to consider before using a credit card to pay tuition is whether or not your school allows you to charge free tuition. Colleges charge fees for accepting credit card payments – usually around 2.5% to 3%, enough to cover the fees card issuers charge merchants.
The first step to take before making a decision is to find out if your school accepts credit cards and, if so, if there are fees for using credit for payment.
If there are no fees for using credit and you have the money to pay your bill in full, then you are in the best position to take advantage of it. By charging tuition to your preferred rewards card and paying your bill immediately, you can enjoy the rewards you earn without having to pay extra.
2. The fees you will pay are less expensive than the rewards you will earn
Now let’s say your college charges a fee – but it’s quite small, around 2.5%. In this case, a cashback card with a higher rate of return would give you a head start.
Let’s say you signed up for Discover it Cash Back. This card only offers 1% back on regular purchases, but Discover match your earnings for the first year. With this card option, you can charge $10,000 in University of Houston tuition, pay a $154 fee, and earn $200 in cash back at the end of your freshman year.
If you wanted to earn travel rewards instead, you might consider a card like Discover it Miles. This card only offers 1.5 miles per dollar spent, but again Discover will match what you earn after 12 months. With that in mind, you actually earn 3% back on your first year with no annual fee. Plus, you can redeem those miles to cover any travel purchase you want.
If your school charges fees for using credit, but they’re low enough, look for rewards cards that offer a high enough rate of return to make the hassle worth it.
3. You are looking for a huge welcome bonus
Another case where it might be a good idea to charge some of your college expenses or tuition to a credit card is when you’re looking for a big welcome bonus. Since many of the best travel and rewards cards offer bonuses worth hundreds of dollars when you spend several thousand dollars on your card in a few months, charging tuition in these situations can be worth it. sadness.
Let’s say you have your eye on the Chase Sapphire Preferred card. This card offers 60,000 points worth $750 in travel after spending $4,000 on purchases within three months of opening your account. Imagine that you attend a university where you are charged a 2.5% fee for using a credit card. If you charged the full $4,000 to meet the minimum spending requirements on this card, you will pay a $100 fee to your school. In return, you will receive 60,000 points worth $750 in travel. It is obvious.
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There are plenty of other travel and cashback cards that also offer huge bonuses, so be sure to explore the options and strategize on your enrollment to get the most out of your tuition.
4. You must reach an annual spending threshold
In addition to welcome bonuses, many cards offer additional benefits if you reach an annual spending threshold.
Whenever you have an annual spending threshold to meet, it can be a good idea to pay tuition with a credit to make sure you get there. Just make sure the fees you pay are worth less than the benefit you seek.
5. You want a short term loan at 0% API
This last situation is tricky because it only works if you need a short amount of time to pay off your tuition bill. However, this option can save you money if you are able to pursue it responsibly.
Because some cards offer 0% APR on purchases for a year or more, they can work like a short-term, interest-free loan. The best part is that you generally won’t pay any fees for using a balance transfer card to score 0% APR on purchases.
Let’s say you signed up for the Chase Slate Edge. Not only do you get 0% APR on balance transfers for 18 months, but you also get 0% APR on purchases made during that time.
If you charged your tuition to this card, you would essentially get an interest-free loan for a full 18 months. However, you should only try this strategy if you know for a fact that you can repay your loan within that time frame. Since the interest rate on this card will reset to 14.99% to 23.74% after the introductory offer period depending on your creditworthiness, this option is way too expensive if you need to pay off your student loans. long-term.
[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.]