Why you shouldn't charge college bills

It all seems so simple: When you get those college bills from the bursar’s office, you just put them on your credit card. You even may earn airline miles or other rewards.

At first, this way of paying for college seems so efficient. What could be easier than handing a college your credit card number? Unless you’re willing to pay onerous surcharges, don’t do it.

Most four-year colleges will nail you with credit card “convenience” fees when you charge bills. While it’s easy for you to make this transaction without writing a check, in many cases you’ll pay dearly for the privilege.

According to a new survey by creditcards.com, you’ll pay up to 3 percent on college bill charges. Some 85 percent of the 300 colleges surveyed accept payments on credit cards. The average fee is 2.6 percent, which is an extra $262 out of your pocket for every $10,000 billed in tuition.

If that additional fee went to the university as a donation to its endowment or to a general scholarship fund, I don’t think too many parents would have a problem with it. But all too often the charge doesn’t even go back to the college.

“The schools aren’t profiting from these convenience fees for the most part,” said Matt Schulz, senior industry analyst for creditcards.com. “Often, the fee money never even gets in the school’s hands. It is charged as a separate line item on the cardholder’s statement and paid not to the school but to the third-party company that process the school’s card transactions.”

 “If your college charges a high convenience fee, it’s not worth paying your tuition with a credit card,” Schulz added. “Especially if you have outstanding student loan debt, it’s unnecessary to dig yourself more deeply into debt just to pay with plastic.”

Do most parents or students know that they’re getting clipped when they use a credit card for college expenses? They should clearly tell you before you make the charge, although disclosure may be one step removed on the college’s site. That means many parents may be unaware of the additional fee.

“Most schools disclose the fee on their website, but it’s not always easy to find,” Schulz told me in an email. “Some schools told us that you’ll be alerted to the fee before you complete your online payment if it’s not noted elsewhere on the website.”

Although schools have to disclose the fee, getting a clear explanation on why it’s charged and the terms of the surcharge can be murky. The University of Colorado-Boulder, for example, states on its bursar’s office site:

“The 2.75 percent service fee is added to your payment and will appear as a separate item on your credit card statement. It will not appear on the tuition and fee bill. The service fee is not assessed by CU. The service fee is nonrefundable, even if the payment to which it relates is cancelled, refunded, credited or charged back.”

Those aren’t exactly flexible terms. I know from my own experience with my credit card company that if I’m a day or two late on my payment, I can call and get them to waive the late fee.

 “If you want to learn about the fees before you start the payment process, it sometimes takes a phone call to the bursar’s office,” Schulz advises.  “Still, it’s worth making that phone call. The sooner you find out about the fees involved, the better.”

Speaking of credit, now’s a good teaching moment on this subject. If you choose to give your child a credit card for college, unless you‘re able to absorb an unlimited number of expenses, you’ll need to set some limits. How much can they charge every month? 

To answer that question, look at your student’s projected out-of-pocket expenses. Do they have to buy books on their own? They may pay up to $1,000 a year for new hardcovers (check out used, online or digital books).

If you’re shopping for a student-friendly credit card, one product to consider is a “secured” card, which requires a cash deposit before opening. This ensures that your child has some skin in the game in case they can’t pay on time. You can find them here.

While learning how to use credit responsibly is important, having a spending budget is essential. How much cash will they need to buy food when the dining halls are closed? What’s included in their meal plan? What if they need to buy additional school supplies at the campus bookstore? 

Come up with a realistic monthly allocation or have them save up in their own account for discretionary purchases from summer jobs. 

For me, though, the key part of credit education is how to pay as little as possible for it. With most cards, if you pay within the monthly “grace period,” you avoid finance charges. You can also find cards that charge no annual fees.

 You’ll also need to know the “triggers” on cards, that is, what makes you pay more in late or over-the-limit fees. Every card must disclose these details, so read the fine print.

 A good place to shop for the right card that combines key information on credit records and education is credit.com. The site also has some articles on student loans.

 As with all credit matters, you need to know the details before you use this method of payment. And if you want to avoid the convenience fee, simply write a check or have the money wired from one of your accounts.

Better yet, if you still want to use a credit card, yet want to avoid the service fee, go to a community college, where the survey found that only 8 percent of these institutions levied this charge (more than 90 percent of four-year schools do). You can not only save on charging bills, the tuition is a bargain.

  • John Wasik

    John Wasik is the author of The Debt-Free Degree and 15 other books. He writes and speaks regularly on personal finance issues throughout North America.