It may appear to be a clever life hack: If you have a rewards credit card, use it to pay for your college tuition to earn valuable rewards.
Depending on the type of school you attend, college tuition averages $11,610 to $43,350 per year, according to the College Board. By paying the bill with a rewards credit card, the amount of points, miles, or cash back you’d earn could be substantial.
However, you might have to pay a service or convenience fee to use a credit card, so it’s wise to consider the pros and cons and review different financing options.
If your college’s student bursar office allows credit cards as a payment option, there are definitely some advantages to using one.
Rewards credit cards allow you to earn points, miles, or cash back on eligible purchases. Considering that tuition payments can be thousands of dollars, your potential rewards could rack up quickly.
For example, let’s say you owe $10,000 for tuition. With a card like the Capital One Venture Rewards Credit Card, which offers unlimited 2x miles on eligible purchases, you could earn 20,000 miles (worth $200 toward travel).
Some credit cards attract new cardholders by offering special sign-up bonuses. New cardmembers who meet the cards’ spending requirements within a specific period can earn added rewards.
If you use your card to pay for your tuition bill, you can quickly meet any necessary spending requirements for a credit card welcome bonus and qualify for bonus rewards points, cash back, or miles.
If you have good credit, you could qualify for a card that has a promotional APR. Most 0% APR credit cards offer an introductory 0% APR on purchases for a limited time, such as 12 to 18 months. After that, the regular APR applies.
With a promotional APR, you can essentially finance your tuition costs at 0% interest over several months. However, you must pay off the card’s full balance before the promo APR expires. At that point, any amount remaining on the card will begin accruing interest.
Read more: How does credit card interest work?
Although the idea of using a credit card to earn rewards or to qualify for sign-up bonuses can be appealing, there are some significant downsides:
Many colleges and universities permit credit card payments, but that’s not the case for all schools. Some colleges prohibit using credit cards to pay tuition or other school-required fees.
If your college doesn’t permit credit cards, you’ll need to find another financing option.
If your college allows credit or debit cards as a payment method, be aware that there can be an added cost for the convenience of using plastic. Colleges often charge service fees, which can range from 2% to 4%, depending on the school.
For $10,000 in tuition, that’s potentially a fee of $200 to $400. Such a high fee could negate the value of any rewards you may earn with your card.
Read more: Credit card fees explained: 8 types you should know
College is already very expensive, and you need to be aware of how credit cards, with their APRs, can add to that cost.
Credit card rates can often go well over 20%, and if you don’t pay off the balance in full by the end of your billing cycle, interest charges can build rapidly. Student loans, on the other hand, generally charge much lower rates and come with more built-in protections for college students.
Let’s say you owe $10,000 to your college. Here’s a look at how interest costs affect what you pay, and how a credit card could compare to a federal student loan.
[there’s a table in the original article here]
Read more: Current credit card interest rates
Unless you have access to a lot of available credit, charging a large expense like college tuition to a credit card will likely impact your credit utilization ratio. This represents the amount of credit you’re currently using in relation to the amount that you have available.
The lower your credit utilization, the better it is for your credit score. If you’re carrying a large credit card balance, it may make it harder for you to borrow money later — including forms of debt like private student loans.
Credit cards typically involve high interest rates and fees. As a result, using a credit card to pay for your tuition may only make sense if you have a 0% APR offer or if you have the money to pay off your credit card bill in full by the end of the billing cycle; with either approach, you could earn rewards and avoid interest charges.
But if you charge your tuition to your credit card and must eventually pay interest fees on it, there are safer and more affordable ways to finance your education. Consider the following options first:
Fill out the Free Application for Federal Student Aid (FAFSA) to apply for federal aid, including federal grants and work-study programs. Colleges also use the FAFSA to decide whether you’re eligible for institutional aid, including grants.
Additionally, you can apply for private grants or scholarships through sites like FastWeb or Scholarships.com. These awards generally don’t have to be repaid, so they can make college much more affordable.
Read more: Your complete guide to FAFSA
Some colleges have payment plans that allow you to make payments toward your tuition bill in monthly installments rather than having to pay it all at once. These plans are usually interest-free, but they may have a small enrollment fee.
Read more: Can you change your student loan repayment plan?
Finally, if you need additional financing, student loans can help cover the remainder not paid for with scholarships or grants. You can take out federal or private student loans to cover up to 100% of the school-certified cost of attendance.
While debt is never ideal, student loans typically have significantly lower rates than credit cards, with more flexible repayment options and borrower protections. For most students, they make much more financial sense than turning to a credit card.
Read more: Should you use a credit card to pay for college textbooks?
It’s a great idea if you don’t have to pay any additional fees. Large tuition payments can help you earn plenty of rewards on a travel credit card or cash-back credit card, especially if you’re eligible for a new cardholder welcome offer.
However, it doesn’t make sense to use a credit card for tuition if there are high fees or you plan on carrying a balance. Earning rewards isn’t worth getting into credit card debt.
It depends on your college and its accepted payment methods, but American Express, Visa, Mastercard, and Discover are all commonly accepted if credit cards are an available option.
Yes, many colleges charge extra service or processing fees if you want to pay tuition with a credit card. Because of these fees, it might not be worth using a credit card for this expense. However, it depends on the type of fee. A flat fee of $2 or $3 could be worth paying, but a percentage fee of 2% or 3% likely isn’t worth paying.
This article was edited by Rebecca McCracken
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
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