Yahoo Finance Should You Pay for Your Education with Student Loans or Credit Cards?
It’s no secret that the cost of college education has increased at an overwhelming rate in the last few decades. In fact, a report by the College Tuition Data Initiative estimates that the cost of college tuition has increased 747.8% since 1963 after adjusting for currency inflation.
Check Out: Jeff Bezos’ Billion-Dollar Life: A Look at His Mansion Collection
Read Next: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy
At this rate, many students are exploring different ways to cover college costs, like using credit cards. Keep reading to determine if this payment method is a good options for covering your educational expenses.
Can I use a credit card to pay for college tuition?
Higher education institutions usually accept credit card payments, though you should check with your college’s bursar’s office for specific terms and limitations. There may be additional processing fees or caps on how much you can charge on your credit card at one time.
If you cannot use your credit card directly, you may be able to get a cash advance from your credit card. If necessary, you could convert your cash into a check to pay your tuition bill. Note, cash advances tend to have more fees and a higher annual percentage rate (APR) than regular credit card transactions, so ensure that you understand your card issuer’s terms related to cash advances.
Jack Wang is a college financial aid advisor at Innovative Advisory Group, “Using a credit card is generally not a good way to pay for college unless the family gets other benefits, such as points or miles. Interest rates are generally higher than other loan options, and most colleges will charge a credit card processing fee, typically in the 2-3% range.” He adds, “However, using a credit card as a good temporary funding source to get miles, points, or a 0% promotion period if the family has other money to pay off the credit card.”
Why you might choose to pay for college with a credit card
In some cases, you may choose to pay with a credit card because you are not eligible, for one reason or another, for federal or private student loans. Even if you are approved for an educational loan, you may still have out-of-pocket expenses that you need help with during your college years. This may include educational materials like books, food, transportation and other living expenses.
What are the benefits of using a credit card for college?
One benefit of using a credit card for college expenses is earning rewards or cash back on your purchases. These rewards that can be redeemed for travel, merchandise, or statement credits. Also, putting all your college expenses on a credit card may help you consolidate them into one place for easy management and payment. In some cases, the interest you pay on educational expenses may also be deductible.
Plus, some credit cards have promotional 0% APR offers on purchases and balance transfers, which may help you spread your tuition payments over time without incurring interest, provided you pay off the balance within the promotional period.
Finally, responsible credit card use can help you build a positive credit history, which can help you in future endeavors such as renting an apartment, buying a car, or getting a mortgage.
What are the drawbacks of using a credit card to pay for college?
The biggest drawback of using credit cards for college expenses is the interest you’ll pay on the money you borrow. If you carry a large balance on your credit card, the interest charges can add up quickly, resulting in large amounts of debt that can be difficult to pay down. Also, using a credit card may incur other fees, like a processing fee, which ultimately increases hikes the cost of your education and related interest charges.
How can I use a credit card to pay my college education expenses?
If you must resort to using credit cards to help cover your college expenses, then ensure you are doing it in the smartest way possible:
Have a clearcut repayment plan.
Pay down balances quickly to avoid excessive interest charges.
Use credit cards for necessary expenses that you can afford to pay back promptly.
What are alternatives to using credit cards?
Tom O’Hare is the founder of Get College Going. He has over thirty years of experience working with college admissions, financial aid, and student recruitment professionals in senior consulting roles. He says, “I always recommend using the Federal Direct Student Loan in combination with the interest-free Monthly Tuition Payment Plan available through the college. Treat private education loans and credit cards as a last resort.”
Learn More: Bill Gates’ $10.95 Million Daily Income: How the Microsoft Legend Spends It
It’s also worth noting that federal student loans have benefits like flexible payment options and lower interest rates than many other loan types. Also, options like deferment, forbearance and forgiveness allow you to postpone, reduce or even eliminate your payments under certain circumstances.
Additional alternatives to using credit cards for college include:
Grants and private scholarships.
Private student loans.
Personal loans.
Attending a less expensive school like a community school.
Working while attending school part-time.
Employer tuition reimbursement programs.
More From GOBankingRates
I'm a Shopping Expert: 6 Things Retirees Should Never Put In Their Grocery Cart
6 Things to Try This Week if You're Behind on Your Savings Goals
This article originally appeared on GOBankingRates.com: Should You Pay for Your Education with Student Loans or Credit Cards?
