Paying for College: Paper or Plastic?

To cut costs, some colleges are turning to a third-party vendor for transactions involving credit card tuition payments.
June 7, 2006

American Express might consider setting its next commercial at Georgia State University. The company could surely capitalize on the news that one of its main competitors, Visa, has lost its market share at the downtown Atlanta institution.

Beginning this fall, parents and students there will no longer be able to use Visa to pay for tuition and fees. Instead, they can go online and pay with MasterCard, American Express or Discover through a third-party vendor that charges the payee a 2.75 percent service fee per transaction.

For Georgia State, the move came down to finances. Ron Henry, the university's provost and vice president of academic affairs, said increased enrollment, budget cuts and rising annual fees from Visa and other credit card companies fueled the move. He estimates that four years ago, Georgia State incurred losses of about $300,000 per year because of credit card charges. Now, that cost is about $750,000 annually, Henry said. 

Georgia State is the latest college in the Peach State to respond to the cost of allowing students and parents to use plastics. In 2004, Georgia Tech adopted a policy of no longer accepting any type of credit card as payment for tuition, fees, meal plans or housing. Emory University has long prohibited credit card payments, and the University of Georgia last year also went to a third-party system that excludes Visa. (The company, which could not be reached for comment, has declined to participate in the third-party arrangement.)

Henry acknowledged in a letter to students that “Visa has been the preferred method of credit card payment for students.” But he said in an interview that it came down to prioritizing how money should be spent. “We’ve been absorbing this cost all along, and more students and parents are correctly taking advantage of the system,” Henry said. “We were in a position of having to reduce administrative expenses or else risk having to shut down programs."

Matt Hamill, senior vice president for advocacy and issue analysis at the National Association of College and University Business Officers, said the question of who should incur the cost of using credit cards is a continuing issue in higher education. “If 2 percent of tuition payments are spent paying the bank, you have to look at how that credit card arrangement serves the interests of students and families,” he said.

As another payment alternative, Georgia State has announced a free, 24-hour-a-day, electronic check payment system, which is also used at Georgia Tech.

Joel Hercik, associate vice president for financial services at Georgia Tech, said the university saved about $1 million in the first year after switching to a no-credit card policy. “The credit card fees we were paying to the providers got to be too much -- we were having some severe budget problems,” he said. "We'd rather not lay off people or reduce academic programming."

Hercik said he has received few complaints about the new system, and that the Web check system has become the primary method of payment. The Board of Regents of the University System of Georgia named Georgia Tech's payment system a "best practice," which motivated Georgia State to follow suit.

James Boyle, president of College Parents of America, said that while his organization advises parents against paying for college with credit cards because of hidden costs, the practice is viable for those who are fiscally responsible. 

“Disallowing [credit card use] isn’t a very parent-friendly policy," Boyle said. “Providing the greatest flexibility in payment options is the best way a college can operate."


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