Survey Reveals Paying Tuition with Credit Cards Creates Enormous Fees
Posted By Terri Williams on September 23, 2016 at 9:33 am
The cost of a college degree is rising, and most full-time students can’t afford to work to pay for college anymore. As a result, many students must get student loans, although recent research reveals that the burden of student loan debt is limiting careers, marriage, home-buying, and other major decisions. Most colleges also allow paying tuition with credit cards.
But paying tuition with credit cards comes with concerns. Some schools have stipulations: For example, credit cards can only be used for online payments and so those who are making in-person payments cannot use this option.
According to the 2016 Credit Card Payment Survey, conducted by CreditCards.com, the vast majority of colleges charge a fee for this payment method. The survey includes the responses of 300 of the largest public, private and community colleges in the U.S. and reveals that the number of schools that accept and charge fees for paying tuition with credit cards is rising.
Below are selected excerpts from the survey:
|57%||Schools that charge a convenience fee for credit card use|
|93%||Public universities that charge a convenience fee for credit card use|
|77%||Private universities that charge a convenience fee for credit card use|
|3%||Community colleges that charge a convenience fee for credit card use|
|$4,443||Average amount of tuition charged on a credit card|
|96%||Schools that charge a percent based on the total transaction amount|
|2.75%||Most common card fee charged by schools|
|2.62%||Average card transaction fee|
Using a credit card can be convenient, and depending on the credit card, the user may receive points, rewards, etc. But is it really a good idea to use a credit card to pay tuition? GoodCall spoke with three experts in this area to find out.
The rise of credit card fees
Usage fees have been rising steadily, and Collette McCurdy, director of student accounts at the University of Nebraska-Lincoln, tells GoodCall that credit card banks have a history of charging businesses that accept credit card payments. “Historically, colleges paid the convenience fee for the student – of around 2% – to credit card vendors for every sale processed.”
However, McCurdy said that for some schools, this amounted to more than $2 million a year. As state funding decreased, colleges looked for ways to streamline expenses, and she says that many schools moved to a no-credit-card model.
“A good portion of those that still offer credit cards do so through an outside vendor, like NelNet, Cashnet, or Touchnet: These companies facilitate free e-check options, and also credit card payments for the school.” And while the companies don’t charge the school, McCurdy says, “They make their money by increasing the convenience fee a fraction of a percent and charging the credit card vendor’s fee in addition to their own for each sale.”
Usually, it’s the third-party processors that charge these fees, and according to the survey, some schools actually limit credit card payments in a variety of ways. For example, Northeastern University in Boston does not allow undergrads to pay tuition with credit cards. At LeHigh University, undergrads can only use credit cards during the summer term. Boston University only allows paying tuition with credit cards for part-time students.
Why consider paying tuition with credit cards?
There may be a variety of reasons. However, Megan Scherling, program coordinator for the Student Money Management Center at the University of Nebraska-Lincoln, tells GoodCall, “What I have seen the most this year is students who have a smaller balance to pay after federal financial has been applied – less than $1,000 – who want to put it on a credit card and then work throughout the semester to pay it off.”
However, Scherling says she often reminds them that they probably won’t be able to use their entire paycheck on paying down the credit card amount since they will need that money for other expenses.
Other students/parents may use credit cards to help accumulate rewards points, but the convenience fee usually negates any financial rewards associated with using this method of payment. In fact, Scherling says, “Usually after hearing that we have a 2.75 percent fee for cards, most students decide to ask their family members to help, or they look at another option.”
Are student loans a better option?
One of those other options is a student loan. Justin Chase Brown, director of scholarships and financial aid at the University of Nebraska-Lincoln, tells GoodCall that, on a personal level, he respects the financial decisions that payers use. ”But as a financial aid director, I would always recommend students file the Free Application for Federal Student Aid (FAFSA) at www.fafsa.gov and consider federal loans first.”
Brown explains that undergraduates who get a student loan this year will have a 3.76% interest rate, and for those with subsidized loans, the interest won’t start accruing until they graduate or are attending at less than a half-time basis. He adds, “Unsubsidized loans for graduate students are at a 5.31 percent interest rate and PLUS loans that parents often borrow are at a 6.31 percent interest rate.”
And besides the low interest rates, Brown says that federal loans offer income-based repayment plans, forgiveness options, and other benefits that don’t accompany credit card use.
“Typically, credit card borrowing will exceed the interest rates of student or parent loans, even in the private market – but utilizing credit cards as borrowing for college – if the entire balance is not being paid off monthly – can be quite costly and also require repayment while the student is in school.”
Brown warns that credit cards were not designed with college students in mind. “Students in need of financial aid for college should always work with their designated financial aid office as a first point of contact and work with a financial aid advisor regarding their options – even students who are not eligible for financial aid can be connected to resources on campus or elsewhere as options before having to resort to credit cards.”