Paying College Tuition on a Credit Card: Fees vs. Rewards

Paying College Tuition on a Credit Card: Fees vs. Rewards

The dog days of summer are here, which means that the fall semester of college for millions of students across the country is about to commence. Higher education costs have been steadily increasing over the last two decades, making tuition a sizeable expense for many families. While many college and universities accept credit cards for these payments, it isn’t always free to do so. If you’re responsible for a tuition payment, should you pull out your trusted travel rewards credit card or opt for paying with a check or withdrawal from your bank account? In this post, we’ll help you answer that very question.

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Before getting into when it makes sense (and when it doesn’t make sense) to swipe your card for your kid’s college, it’s important for you to first do your research. Is this even an option? If so, are there fees associated with it? A quick call to the finance office or registrar at the given institution should do the trick, though many will post details of their payment options online as well. If you type “(Insert college name here) tuition credit card” into your favorite search engine, you’ll likely see the applicable site in the first few results.

Generally speaking, the college or university in question will fall into one of three categories:

Tuition can’t be paid with a credit card (like my undergraduate alma mater, Wake Forest) Tuition can be paid with a credit card with no additional fee (like the University of Nevada – Las Vegas, from which I obtained my M.Ed.) Tuition can be paid with a credit card with an additional fee (like the 2.6% fee charges by the University of Florida, where I earned my M.B.A.)

The first two options are a no-brainer. If you can’t use a card at all, you’re (obviously) out of luck, and several institutions impose these restrictions. In fact, take a look at the applicable FAQ from the Cashier’s Office at the University of California – Santa Cruz:

Hey, at least they’re honest!

On the other hand, if you can pay your tuition with a credit card and won’t incur a fee, then you absolutely should do it and be grateful that you can! Just be sure that you are able to pay off the entire amount when your statement comes due, which is my number one commandment for travel rewards credit cards. If you can’t and must carry a balance, any interest and finance charges will easily cancel out the points or miles you’d earn on the purchase.

Unfortunately, the number of schools that fall into this second category is relatively small. In fact, I went through US News & World Reports’ list of the top 100 national universities in the country (technically 102 schools due to six-way a tie for 97th place) and found just five that allow no-fee credit card payments for tuition:

University of Southern California State University of New York (SUNY) – Binghamton SUNY – Stony Brook SUNY – College of Environmental Science and Forestry SUNY – Buffalo

(Note: It appears that most if not all state universities in New York don’t charge fees for paying with a card, so if you’re looking at or already attend one these schools, you’re in luck!)

That being said, there are other exceptions I found for certain classes of students. For example, part-time students at Boston University can pay via credit card with no fee, as can most graduate students at Northeastern and Lehigh. The strangest policy I came across comes from the University of California – Davis, where you can pay a $12 flat fee to use a (wait for it) Discover card. As noted above, make sure to do your research to see if you’re eligible for these low fee or no fee credit card payments.

Where things get more complicated is the third category. On the 102 top national universities, 65 allow payments with fees that range from 2% (Penn State University, Brigham Young University and the University of Maryland) to 2.99% (Brandeis University). Should you incur a fee to pay college tuition with a credit card? As is the case with much of what we cover here at The Points Guy, the answer isn’t absolute: “Yes, but only in certain circumstances.”

Let’s take a look at where it would make sense.

Earning a Welcome Bonus Many top travel rewards cards offer large sign-up bonuses, and if you can’t spend enough to earn one, it may be worth incurring a fee on your tuition payments.

The first scenario under which you should consider paying tuition with a credit card involves credit card welcome bonuses. Many top travel rewards credit cards offer large amounts of points or miles for reaching a certain level of spending in a given timeframe. In some cases, your normal everyday spending may not be enough to get you there. If the only possible way of meeting the required minimum spending threshold to earn a bonus is to incur a fee on tuition payments, it could make sense to do so.

For example, let’s say that you were interested in the British Airways Visa Signature Card and it’s enhanced bonus of up to 100,000 Avios. You’d earn 50,000 bonus Avios after you spend $3,000 on purchases in within the first 3 months of account opening (easy enough). You can then earn an additional 25,000 bonus Avios after you spend $10,000 on purchases, plus a further 25,000 bonus Avios after you spend a total of $20,000 on purchases within your first year of account opening (a bit harder). Based on TPG’s most recent valuations, the first haul of Avios is worth $750, while the second and third hauls are each worth $375. While you can easily spend enough organically to earn the first 50,000 Avios, the only way you could get the remaining 50,000 is by charging tuition to the card.

If the tuition payment in question is $20,000 and your university that charges a 2.6% fee, this would tack on an extra $520. However, in doing so, you’d earn an additional 50,000 bonus Avios plus 20,520 Avios for the purchase itself (at the standard earning rate of 1 Avios per dollar spend). These 70,520 Avios are worth $1,057.80, more than covering the fee charged by the university.

Once again, however, this logic only applies if you have no other way to spend the required amount to earn the welcome bonus. If you can reach that threshold in other (fee-free) ways, you’re much better off doing that and using a different method to pay the tuition that won’t incur a fee.

Earning a Threshold Bonus

Another time it may make sense to incur a fee for paying college tuition is when you’re trying to reach a threshold bonus. Let’s continue with the example of the British Airways Visa. One of the perks on the card is an annual Travel Together ticket that’s earned when you spend $30,000 or more in a calendar year. Valid for two years from the date of issue, it allows you to redeem Avios on a round-trip, British Airways-operated flight from the US and bring a companion along by paying just the taxes and fees on his/her ticket. Even though this still requires a fairly large out-of-pocket expense, it could make sense, especially for premium class redemptions.

For example, let’s say that you wanted to fly from Miami (MIA) to London (LHR) in business class next summer. At the time of writing, you and a companion could use Avios fly out on Saturday June 22 and return Wednesday July 3 (just in time for the Fourth of July). Under the normal redemption rates and with current exchange rates, this itinerary would set you back 250,000 Avios plus $2,706.68.

However, applying the Travel Together ticket to this itinerary would halve the number of Avios you’d need. Getting two round-trip business-class tickets to Europe for 125,000 points and ~$2,700 in taxes and fees would represent a decent value for many travelers.

If you have a tuition payment of exactly $30,000 that would incur the same 2.6% fee as the above example, you’d be paying an additional $780 to swipe the card. However, you’d also be taking home 30,780 Avios (worth $461.70), essentially making the cost of the Travel Together ticket just $318.30. If you can get at least that amount of value from this perk, the British Airways Visa could again make sense.

Timing Both a Welcome and Threshold Bonus If you play your cards right (pun intended), you could parlay a large tuition payment or two into a Southwest Companion Pass.

Of course, you could leverage both of the above strategies at the same time to earn the full welcome bonus and the Travel Together ticket on the British Airways Visa card, but there’s an even more compelling option out there with some trickier timing. This won’t actually apply to the fall semester but would be a terrific option as you prepare to pay your tuition for next spring, and it involves one of the most valuable perks in the frequent flyer world: the Southwest Companion Pass.

In July 2018, Southwest added a new credit card to its line of co-branded products with Chase: the Southwest Rapid Rewards Priority Credit Card. Like the British Airways Visa, it offers a tiered bonus. You’ll earn 40,000 points after you spend $1,000 on purchases in the first 3 months plus an additional 25,000 points after you spend $15,000 total on purchases within the first year. These bonus points as well as any points you earn through regular spending on the card do count towards Companion Pass qualification, so a hefty tuition payment could get you almost all of the way there.

However, this gets even better if you time things right. Since the Companion Pass is valid for the rest of the year in which is was earned and the entire following year, you should always try to earn the 110,000 qualifying points as early as possible in a calendar year. As a result, you’ll want to wait to apply for the card until the late fall or early winter (think November or December). Then, don’t spend anything on the card until your December statement closes. Once that happens, charge the tuition. When your January statement then closes, you’ll earn the full 65,000 points plus the points earned for the tuition payment(s). Voila! You’ll be close to earning a Companion Pass valid for almost two years.

To illustrate this, let’s say you have two children with $22,000 tuition payments each semester that can be paid with a credit card but are subject to a 2.6% fee. This amounts to a total spend of $45,144. If these purchases are the very first ones you make after getting approved for the card and both appear on your January statement for the Southwest Priority Card, you’d take home the following:

45,144 Rapid Rewards points from the purchases 40,000 Rapid Rewards points from spending $1,000 in the first 3 months 25,000 Rapid Rewards points from spending $15,000 in the first year

Your total haul is thus 110,144 points, and since you timed it perfectly and all of these earnings posted to your Rapid Rewards account in January, you’ll be able to enjoy the Companion Pass for almost two years. Would you pay a one-time fee of $1,144 for a Companion Pass valid for roughly 23 months? I know I would!

Earning More Valuable Points The Amex Business Platinum offers 50% more points on purchases over $5,000, making it a great candidate for tuition payments.

Another time you should consider swiping a card for tuition is when the points or miles you’d earn are more valuable than the fees you’ll incur. This is a very gray area, since everyone has his/her own way of valuing the various loyalty currencies out there. A good place to start is our monthly valuations to at least get a ballpark of how much you can get out of your points and miles. However, keep in mind that these valuations typically apply to redeeming points for maximum value, especially when it comes to transferable point currencies, so the math may not make sense if you redeem your points directly.

Here are a couple of examples of when the points or miles you’d earn would outweigh the additional fee:

Chase Freedom Unlimited: This card offers 1.5% cash back on all purchases, but if you also hold a “premium” card like the Chase Sapphire Reserve, you can convert those cash-back earning into full Ultimate Rewards points. This is (thus) equivalent to earning 1.5 points per dollar spent on every purchase. Since we peg Ultimate Rewards points at 2.1 cents apiece, you’re essentially getting a return of 3.15%. If the fee for using a credit card for tuition is less than this amount, you’ll come out ahead by using your Freedom Unlimited. The Business Platinum Card® from American Express OPEN: This may seem strange on the surface, since the Amex Business Platinum only offers 1 Membership Rewards point per dollar spent. However, it also gives you 50% more points on purchases of $5,000 or more, so if your tuition payment is above this amount, you’ll earn 1.5 points per dollar spent. We peg Membership Rewards points at 1.9 cents apiece, so you’d get a return of 2.85%. Again, if the fee for using a card is less than this, go ahead and swipe the card.

As always, be sure to adjust these numbers based on your own valuations and evaluate you school’s credit card payment policy to determine whether it makes sense to incur the fee.

Utilizing an Introductory 0% APR Offer The Quicksilver card from Capital One is just one card currently offering an introductory 0% APR. (Photo by Eric Helgas for The Points Guy)

The final time it makes sense to incur a fee on a credit card for tuition is decidedly less glamorous but nevertheless important. With the price of higher education so high, many parents aren’t able to cover a full semester’s tuition with cash in the bank or the money in a college fund. As a result, financial aid packages have become ubiquitous, with roughly 85% of first-time, degree-seeking undergraduates at four-year institutions receiving some form of direct aid in the 2014-2015 school year. However, student loans often come with high interest rates, with federal rates rising to 5.05% for the 2018-2019 school year.

This is where a new credit card with an introductory 0% APR offer can come into play. These cards will generally allow you an initial “grace period” in which to pay off your purchases with no interest before they become subject to standard rates. This can be a great option if you’ve exhausted the funds in a 529 college savings plan, don’t want your kids to be saddled with student debt, and are able to finish paying off the entire balance before the promotional period ends. Bear in mind that these purchases are still eligible to earn points or miles too.

Here are a few cards with introductory 0% APRs at the time of writing:

Amex EveryDay® Credit Card from American Express: 0% APR for 15 months, then a variable rate of 14.74% to 25.74%, plus 1 Membership Rewards point per dollar spent on tuition Capital One Quicksilver Cash Rewards Credit Card: 0% APR for 15 months, then a variable rate of 14.74% to 24.74%, plus 1.5% cash back tuition Chase Freedom: 0% APR for 15 months, then a variable rate of 16.74% to 25.49%, plus 1% cash back (or 1 Ultimate Rewards point per dollar spent) on tuition Chase Freedom Unlimited: 0% APR for 15 months, then a variable rate of 16.74% to 25.49%, plus 1.5% cash back (or 1.5 Ultimate Rewards points per dollar spent) on tuition.

Let’s stick with the above example of a 2.6% fee for paying tuition with a credit card. With any of these four cards, you have 15 months to pay this balance off. Essentially you’re getting a 15-month interest free loan with a 2.6% up-front origination fee. If your only other option is to borrow the funds using traditional methods, you’ll likely find yourself paying far more in interest charges and fees.

Once again, let me reiterate that you must be able to pay off the full balance before the promotional period ends. Otherwise you’ll be subject to an APR that is much higher than the rate you’d get on just about any loan.

Bottom Line

Whether you’re just getting started or are a grizzled points and miles veteran, you’re hopefully looking for any way to maximize your daily spending through travel rewards credit cards. Around this time of year, these efforts inevitably shift towards college tuition payments, though individual institutions may charge you for the privilege of swiping your favorite brand of plastic (or may prevent you from doing so entirely!). If you’ll incur a fee for using a card, there may be instances where it makes sense, and I hope this post has helped illustrate exactly when that’s the case!

Featured image courtesy of Kenyon College / Facebook.