Is it Ever a Good Idea to Pay Tuition with a Credit Card?

  9/10/2014 by    in Student Finances   2 Comments

Credit CardsFor many consumers, the most readily available source of credit can be found right in their wallet.  We have credit cards for general uses, loyalty, gas, and merchants.  Some of our general use cards, like a bank-issued Visa or MasterCard, may even have a fairly high credit limit.  With such easy access to financing, you might be wondering if it’s ever a good idea to pay tuition with a credit card.

Of course, the answer is that it depends.  If you use a credit card for convenience and pay your statement balance monthly, the answer is clearly, “yes.”  However, if you are thinking of using a credit card to finance your bill, the answer becomes a little more tricky.

For the most part, taking on credit card debt that you will be paying over a long period of time is not a good idea and there are better options such as a private student loan or the federal PLUS loan.  But, in some cases and at some schools private and federal student loans are not an option.  In those cases, using a credit card may be your only alternative form of funding your education.

The most important factors to consider are:

  • Have you exhausted all other, more affordable options? For example, federal student aid (if available at your school) and outside scholarships.
  • Given the amount you need to access, how quickly can you repay or more precisely, what is your ability to repay?
  • How much will you incur in finance charges?

If you’re thinking of paying tuition with a credit card, the odds are that you have exhausted all other options.  If your school participates in federal student aid programs there, be sure to apply as there are a number of grants and student loans that you may be able to utilize before considering plastic.  To apply for federal aid, you need to complete the FAFSA.  You can also apply for outside scholarships.  Do a scholarship search, keep your profile updated and check your results at least once a month to find new opportunities.  Take your time when applying and ensure your application is complete, accurate and is of the highest quality you are capable of producing.

Next, think about how much you need to finance.  If you are trying to fund a vocational program, the costs are often within reach of a credit card’s limits.  The trick is determining how long you will carry that balance and how much added cost you will incur through finance charges.  A typical bank card will set your minimum monthly payment such that if you made no further charges, you would pay the balance off in 48 months.

Naturally, while you carry a balance you will be charged interest.  If your interest rate is particularly high and you carry a balance, your financing costs will be relatively high.  For example, if you charge $5,000 at 19.99% and repay over 48 months, your finance charges would be $2,302.34 or nearly half of what you needed in the first place.  Many people only worry about the monthly payment, but it’s also crucial to consider the added cost that financing adds to the equation.

The bottom line is that we can’t tell you if it’s a good option.  If you have run out of other, more affordable options and advancing your education is the only way forward for you, charging your tuition may be a reasonable action to consider.  However, you shouldn’t take this path if you do not have the ability to manage the monthly payment required when you receive your statement.  Because of their convenience, it’s incredibly easy to let your charging get out of control.  If you already carry a large balance you can barely afford, adding tuition to the mix is a bad idea.  Likewise, don’t assume you’ll make more money in the future and at some point your payment will become more affordable.  Work with what you have today.

Finally, whether you like it or not, you need to create a budget for your personal finances.  Get a handle on your monthly income and expenses before you make any major financial decisions.  Once you’ve gone through the exercise of getting your income and expenses (all of them!) on paper, figure out where you can save.  Ideas might include changing your cell phone plan or downgrading your cable to a lower tier (or eliminating it altogether).  Budget for future expenses–especially entertainment.  Once you have a clear understanding of your discretionary income, you can begin to think about how adding an expense like a new or higher credit card payment will impact your finances.  If you’re still unsure, consult a financial planner.  A financial planner can help you create a budget and set goals.  They can also help you weigh the pros and cons of doing things like paying your tuition with a credit card.

About Shawn Lindstrom

Shawn co-founded eStudentLoan.com in 1998, He is passionate about leveraging technology to make paying for college easier for students and their parents. Prior to eStudentLoan, Shawn spent six years working as a financial aid administrator. He holds a B.S. in Political Science from SUNY College at Brockport.
2 Comments
  1. James Petzke

    I would advise people to be very cautious about financing school on a credit card. Those are awfully big bills to get charged 20% on. The exception of course is if you pay it off right away, then it actually can be good because of the rewards.