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 $11,260 to $41,540 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, those rewards could come at a significant cost, so it’s wise to consider the pros and cons and review other financing options.
3 perks of using a credit card to pay for tuition
If you have a credit card with a high enough limit to cover some or all of your outstanding college tuition bill, there are definitely some advantages to using your card:
1. You could earn rewards
Rewards credit cards allow you to earn points, miles, or cash back on certain purchases. Considering that college tuition can be well into the five-figures range, your potential rewards could rack up quickly.
For example, let’s say you owe $10,000 for tuition. If you had a card like the Citi Double Cash® Card, which gives you 1% cash back at the time of purchase and another 1% when you pay your bill, you could earn as much as $200 in rewards. You can redeem those rewards for statement credits, deposits to your savings account, or even gift cards that you can use for the occasional splurge as a college student.
2. You could meet the card’s welcome offer spending requirement
Some credit cards attract new customers by offering special sign-up bonuses. New card members who meet the cards’ spending requirements within a specific period can earn added rewards.
For example, the Chase Freedom Unlimited® card’s bonus offers the chance to earn an extra 1.5% cash back on every purchase, up to the first $20,000 spent over your first year. If you can max out the offer, you’ll get a total of $300 in added cash back — on top of the card’s ongoing rewards.
When you use your card to pay for your tuition bill, you could quickly meet any necessary spending requirements for a sign-up bonus and qualify for extra rewards.
3. You could take advantage of promotional rates
If you have good credit, you could qualify for a card that has a promotional APR. Some 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.
4 drawbacks to using a credit card to pay for college
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:
1. Your school may not allow it
Although many colleges and universities permit credit card payments, that’s not the case for all schools. Some colleges prohibit the use of credit cards for tuition or other school-required fees.
If your college doesn’t permit credit cards, you’ll need to find another financing option.
2. You’ll pay added fees
If your college allows credit card payments, be aware that there can be an added cost for the convenience of using plastic. Colleges usually charge service or processing fees; depending on the school, the fee can range from 2% to 4%.
Such a high fee likely negates the value of any rewards you may earn with your card.
3. Credit cards have high interest rates
College is already very expensive, so you need to be aware of how credit cards can add to that cost because of their APRs.
Credit card rates tend to be 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 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.
4. It could impact your credit
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.
Alternative ways to pay for school
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:
Financial aid
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.
College payment plans
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.
Student loans
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.
