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Sure, your college may allow students to pay for tuition and fees with a credit card. But, like partying the night before a midterm, it’s probably not a good idea.
Paying for anything with plastic requires a plan to get rid of your balance fast. That keeps interest charges from piling up. Plus, many schools charge “convenience fees” that could cost more than the value of any rewards points or cash-back bonuses you’re hoping to get on your card.
Here’s what to weigh before using one type of credit to pursue another.
Convenience fees
Before brandishing your card, check if the school tacks on an extra charge, called a convenience fee, to accept payments made with plastic.
Colleges with convenience fees charge 2.75% of the total payment, on average, according to a survey of 410 institutions by the National Association of College and University Business Officers. That means if you pay $2,000 for tuition, your card will be charged $2,055. The bigger the payment, the more expensive that fee will be.
Eroding rewards
If your credit card offers cash back or travel rewards based on the amount you spend, the idea of charging your tuition bill might make “Free plane ticket” flash in front of your eyes. But do the math first.
On a 1.5% cash-back credit card, you’ll earn $30 in rewards on a $2,000 charge. A 2.75% convenience fee of $55 will more than cancel that out.
It’s more likely you’ll see savings if you recently got a credit card with a sign-up bonus — say, if your card offers $200 back after spending $1,000 in the first three months. But even then, if a convenience fee were applied, it would eat away at those rewards.
Interest charges
Community colleges are the type of school most likely to accept payment by credit card — and the least likely to charge a convenience fee — according to the National Association of College and University Business Officers survey. They’re also the least expensive, according to the College Board.
But even then, it’s not a good idea to pay with a credit card if you plan to carry that balance from month to month. Unless you have a card that doesn’t charge interest for an introductory period, carrying a balance could mean paying loads in interest charges. For instance, leaving a $2,055 balance on a card with an annual percentage rate of 17% will accrue about $29 in interest in the first month alone.
Other financial aid options
Know that you don’t have to pay for school out of pocket.
Fill out the Free Application for Federal Student Aid, known as the FAFSA, to qualify for federal grants you don’t have to pay back. Students with financial need can get a Pell Grant, for instance, of up to $6,095 for the year. The amount you’ll receive depends on your income, school costs and whether you’ll attend full- or part-time.
The FAFSA also makes you eligible for federal student loans, whose interest rates — 5.05% for undergrads in 2018-19 — are generally lower than the rates on credit cards. Check into scholarships, too, and ask about getting tuition reimbursement from your company if you’ll work while studying.
Unless you have a plan to get rid of your balance fast — and you’ve already exhausted every other financial aid option — paying for college on credit doesn’t make the grade.
This article was written by NerdWallet and was originally published by The Associated Press.
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