The benefit of using credit cards is collecting rewards for expenses you were already planning to pay. So if you’re staring down a hefty college tuition bill, you may be wondering whether it makes sense to charge it on a credit card. In doing so, you’ll rack up a ton of reward points, which could effectively be free money in your pocket. The question is: Is charging your tuition a good idea?
What are the fees involved?
Some colleges won’t allow you to pay your tuition with a credit card, so before you contemplate doing so, find out what your school’s policy is. Assuming you can pay tuition on a credit card, the next question becomes whether your college will charge you a processing fee for the privilege of using one.
If there’s no fee, then you may as well use your credit card to pay for college, as writing a check won’t get you any rewards or cash back in return. This advice, however, is based on the assumption that you can pay your credit card balance when it’s due. If that’s not the case, then you absolutely should not use your credit card to cover your tuition. If you can’t afford those bills in their entirety, you should first explore your various student loan options
Federal loans are your best bet in this regard because they come with relatively low, regulated interest rates that make paying them back more affordable. Unfortunately, federal loans also come with a borrowing cap, so if you’re looking at a pricier school, they may not cover your total costs.
Once you’ve exhausted your federal borrowing options, you can look into private loans and compare the interest rates to those charged by your credit card. Generally, private lenders will offer you much lower interest rates than credit card companies, so it’ll most likely make more sense to borrow some money privately than to charge your education.
Now let’s assume that you can pay your tuition from a bank account, but you’re interested in using a credit card for the rewards involved. Again, if there’s no additional fee imposed by your university, you’re golden. If there is a fee, you’ll need to compare it to the rewards you stand to reap. Getting 2% cash back won’t do you much good if your college charges a 3% processing fee for using a credit card.
Things get a little tricky, however, when there’s a sign-up bonus involved. Imagine you’re offered $500 cash back for charging $3,000 or more on your credit card within your first three months of opening it. Let’s also assume you get 2% back on all purchases, and your college charges a 3% processing fee on tuition. If your total bill is $26,000, you’ll pay $780 for using your credit card. However, you’ll also get a $500 sign-up bonus plus $520 cash back for a total of $1,020, thereby making it worth it. Without the sign-up bonus, however, the numbers don’t work.
Another thing to keep in mind is that you’ll need a high enough credit limit to even have the option of charging college tuition on a credit card. If it’s your first credit card, you can pretty much write that option off. But it may be something for your parents to explore, especially if they have good enough credit.
More: Should you keep your student credit card?
More: Ditching credit cards? Here’s what could happen to your score
Credit cards can’t take the place of loans
If, despite your best efforts to borrow enough to finance your education, you end up falling short even after pursuing your private loan options, you may be tempted to charge your remaining college costs on a credit card and pay it off over time. This, however, is a truly bad idea. Not only might it cost you a ton of money in interest, but by carrying a balance for too long, you’ll risk driving down your credit score.
If you don’t have enough money in loans to cover your education, consider deferring your studies for a semester or two, working, and saving enough to bridge that gap. It’s a far better idea than destroying your credit and accruing costly interest in the pursuit of that diploma.
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