Credit Cards a Costly Option

Colleges increasingly accept credit cards as a form of tuition payment, but many experts wonder why.

February 8, 2017
 

It’s becoming more and more common for colleges to accept credit cards as a form of tuition payment, but college and university finance officials say there’s a cost to that convenience for students and families -- and it’s not worth it.

About 85 percent of public and private colleges accept credit cards for tuition, according to a 2016 survey by CreditCards.com. Of those, more than half -- 57 percent -- charge a service fee.

The fees vary, but the most common is 2.75 percent of the amount charged to the card, the same review found. So, for example, if a student owes $4,500 in tuition this semester and decides to pay with a card, that student would have to pay an additional $123.75.

Oftentimes when families pay tuition with a credit card, they’re doing it to rack up rewards points -- like frequent flier miles -- on their cards, said Ronald Ramsdell, founder of College Aid Consulting Services, which helps families reduce their out-of-pocket expenses for college tuition.

“That’s a mistake,” Ramsdell said. “[The fee] will not only wash out the benefits of a rewards program, but could cost even more than the value of that reward.”

At his company, financial consultants advise all their clients to find another form of payment. Not only does the service fee cancel out the airline or hotel points added to the card, Ramsdell said, credit cards make it too easy for families to go into debt. With high interest rates and the tempting option to sign up for more cards, families who go that route often fall behind on payments and end up with bad credit scores.

“Credit cards should be the last resort,” Ramsdell said. “You won’t come out ahead.”

College and university officials tend to agree. Thomas Schmidt, associate director for the University of Minnesota’s Office of Student Finance, said that for a long time, his office resisted accepting credit cards -- he considers it a “bad practice.” But eventually, the demand from students and parents became too high to ignore.

“When we instituted credit cards, we didn’t publicize at all that we were doing it. It wasn’t something that we wanted to promote,” Schmidt said. “It’s not a good idea. We don’t encourage people to do it.”

The university has tried to make the process as transparent as possible, Schmidt said. Before the tuition is charged to their cards, users will go through several screens that clearly state a fee of 2.75 percent will be tacked on to the payment. It also shows exactly how much that fee will add to their total cost. So if the student who owes $4,500 in tuition attends the University of Minnesota, he would clearly see -- before finalizing the payment -- that the amount charged to his credit card will be $4,623.75.

When they first added the option about 10 years ago, the credit card method was popular, Schmidt said, but before long, the numbers started to drop.

Today, credit card payments account for about 13 percent of all tuition transactions at the University of Minnesota, but they make up only about 5 percent of all tuition dollars paid. This means that many families who pay with credit cards are only charging a portion of the tuition to the card and paying the rest with other methods.

The University of Colorado in Boulder also accepts credit cards -- an option that became available about three years ago, according to Greg Atkins, director of the bursar’s office.

Throughout the payment process, Boulder’s website will stop and ask users twice if they want to accept the associated fee of 2.75 percent, Atkins said.

Because the fee is absorbed by a third-party processor, the university has nothing to gain from disguising the costs associated with credit cards. The website is clear and up front about the fee so families can make an informed decision, Atkins said.

“It’s a personal choice,” he said. “If a family wants to make a payment through a credit card, that’s up to them.”

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