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Sarah Tomlinson

Paying College Tuition with a Credit Card – Worth It?

It seems like the perfect reciprocal relationship – pay your college tuition using a points-earning credit card and rack up big rewards that could equal a plane ticket for fun in the sun come spring break. But the reality is not quite that simple. Weigh these considerations before plunking down that plastic come back to school time.

The Cost of Doing Business
A few years back, credit card payments were often a viable option when tuition was due. More and more colleges accepted credit cards. And more and more people found that credit cards were a convenient way to bridge the gap when financial aid was not available or sufficient. If they earned rewards points, all the better.

But then, many colleges and universities realized they were taking a financial loss because of the processing fees they were charged by credit card companies every time they accepted a payment via the companies’ cards. In recent years, this has led some colleges either to stop accepting credit cards, although bankcards are often still accepted; or to charge students a processing fee of 1 to 3 percent in order to cover the costs the credit card companies levy for these transactions.

According to the National Association of College and University Business Officers, 26 percent of colleges charged a fee as of 2007 (the year for which the latest accurate data is available), which was an increase from the 14 percent who did in 2003.

However, some states, including New York, have laws that prohibit the transfer of such credit card fees to consumers. This has meant that many universities there, including New York University, no longer accept payments via credit card. Many other schools, in New York State and beyond, including Columbia University, Princeton University and Boston College also decline to accept credit cards.

Stanford University once charged a 2.75 percent fee on credit card transactions, but has since stopped accepting credit card payments all together, stating that the fees were too high for students.

While it seems that more and more universities no longer accept credit cards as payment options, at least not without a fee, the good news is that many community colleges will. For example, Portland Community College accepts both Visa and MasterCard with no fees.

Some schools are even more specific with their rules; they won’t accept Visa, which doesn’t allow them to pass processing fees on to consumers, but they welcome tuition payments made by MasterCard, American Express or Discover. However, each payment is assessed a convenience fee of 1 to 3 percent. This type of payment acceptance program is common at many schools, including Rutgers and USC, which both charge fees of 2.5 percent, and The University of Southern Maine, The University of Pittsburgh and Northwestern University, where the fee is 2.75 percent.

UCLA began accepting tuition payments by credit card in 1994, but recently began charging a 2.75 percent fee on all tuition paid by credit card. The University of Miami charges a 2.5 percent convenience fee.

For those who choose to pay tuition through monthly or quarterly installments, instead of in one fell swoop, the rules are usually the same for paying by credit card as they would be for paying by check. But it is very important to make sure that a convenience fee will not be charged along with each monthly payment, otherwise those fees could wipe out the benefit of any points you earn.

To Charge Or Not to Charge
Of course, what really matters is whether or not the school at which you are paying tuition accepts credit cards, and if so, which cards they accept, and if they charge a fee, how much the fee will be. This will allow you to decide if the fees are so high they would negate the value of any points earned through the transaction. The best way to answer such questions is to visit your school bursar’s website, where such information is usually provided.

While there doesn’t seem to be a master list of which colleges and universities charge fees and how much, most schools make such information readily available on their websites. If not, a quick call to the bursar’s office at the school should answer all questions.

There’s just one final question that the bursar might not be able to answer: Is it worth it to pay for tuition with a credit card in order to earn rewards points? And the answer to that is: it depends on whether the total cost of the convenience fee is less than the value of the points you’d earn for charging that much on your credit card, assuming your limit is even high enough to allow you to charge the full amount of tuition.

There are a few schools where students can still pay by credit card without being charged much of a fee, although it’s hard not to wonder how long this will last, given the overall climate regarding fees. For now, The University of Utah accepts credit cards with only a $1 fee for online payments, which covers the cost of maintaining their website. The University of Washington charges a service fee of approximately $83 for credit card payments; with annual expenses of $26,066 to $48,346 depending on resident status, it would clearly be financially viable to charge as much of this tuition as your credit limit will allow in order to earn the points, which would easily have a value much higher than $83.

However, at UCLA, where tuition and expenses are estimated at $31,902 and the credit card transaction fee is 2.75 percent, this would equal a fee of $877. You would then have to earn enough points on the transaction to redeem for a plane ticket or hotel room with a value of at least $877 to make the use of your credit card a viable option. Hey, maybe you’ll find a room at a Starwood Category 7 St. Regis somewhere in the world where you can redeem those 32,000 points for an insanely expensive room…but I wouldn’t bank on it.

Even at USC, where the fee is a lower rate of 2.5 percent, and tuition starts at $21,081, paying by credit card would result in a fee of $527, and again, you’d have a hard time getting that value out of any points you earned. If you put your tuition on a Capital One Venture card, for example and earned 2 points per dollar you spent, you’d have just about 42,000 points redeemable for 1 cent each in airfare, so you would be getting the equivalent of a $420 return on your fee, but that still means you’re $107 less rich.

In the end, there is no hard and fast rule about whether or not it makes sense to pay tuition by credit card in order to earn the rewards points. As always, it is necessary to educate yourself (so to speak) on your options, weigh all the information and carefully calculate the value of all applicable fees versus the points you’ll earn, and then weigh the two figures against each other before deciding.

Do that, and you’ll definitely get an A in economics this semester.