Using a Credit Card to Pay College Tuition – Say It Ain’t So!
There are those news stories that really give you pause. And we are not talking about those AOL headliners mind you, the ones like “NASA astronaut insists government covering up evidence of alien visits.”
What we are talking about is the latest news regarding college students and credit cards. According to a study from Sallie Mae, many students are now using credit cards for almost all of their college expenses, including tuition.
Talk about giving one pause – we might have expected students charging books and fees on their card. But we could never imagine anyone in their right mind putting their tuition on one, not with those cards carrying anything from 14.99 to 18.99 percent interest rates.
Today, Sallie Mae notes that more than 84 percent of undergraduates have at least one credit card. Half of all college students carry four or more cards with the current average at 4.6 per student.
An incredible 92 percent of all undergraduates with a credit card charged textbooks, school supplies or other education expenses. College seniors led the way with an average credit card debt of $4,100.
According to the report, “How Undergraduate Students Use Credit Cards: Sallie Mae’s National Study of Usage Rates and Trends, 2009,” students charged an average of $2,200 in direct educational expenses per person, more than double the $942 amount from four years ago. Of those charging educational expenses, roughly 30 percent actually placed tuition on a credit card as well.
While many students were using the cards for convenience, the overall findings of the study pointed to college students using credit cards to live beyond their means. In fact, 82 percent of the students incurred finance charges by carrying a monthly balance.
In a clear indication that credit management was a huge problem, roughly 40 percent indicated they had charged items even though they knew they did not have the funds to pay the bill.
Given the going interest rates and monthly charges of as much as $30.00 for transactions beyond credit limits, the idea that students would place their tuition charges on their credit card demonstrates a real lack of knowledge regarding how credit cards work.
There is no doubt that credit cards offer great convenience. No need to fill out the FAFSA forms and no need to complete additional paperwork to apply for a loan. Add in the ease of online payments and the process is indeed extremely easy.
But credit card interest rates of 15 percent are more than double the current rate for Federal Stafford loans (6.8 percent). Even private loans, considered the least advantageous of loan options carry current rates of only 8 percent.
The result is that credit card users are overpaying for college big time. Unless a student pays off his or her card in full, by placing these charges on a credit card he or she is paying far more than the list price for books, fees and tuition.
College, Expensive Enough
There is no doubt that college expenses are extremely taxing – however, students should be aware that using credit cards to cover these costs only makes the costs of college less manageable in the long run.
First and foremost, students need to build a budget ahead of time that tallies the cost of tuition, books, fees and travel. Once the need is determined, students must pursue the most advantageous funding help available.
That means completing the FAFSA, the standard federal form that is the ticket to potential grants, scholarships and federal loans. Filling out the FAFSA form does take time but it is a must for any serious student.
Even if students do not qualify for grants or scholarships, the first credit option everyone should pursue is the Federal loan program. Simply stated, they represent the best borrowing bargain.
Only after completing the federal application process should students pursue the more expensive private loan option. Such loans carry higher interest rates and other processing fees may be assessed depending on a student’s credit standing.
Still, private loans are a bargain compared to the fees and rates associated with credit cards. Unless a student has a wealthy friend or relative paying that credit card bill for them, placing one’s tuition on a credit card is a recipe for disaster.
In fact, it is as preposterous to us as that NASA astronaut claiming our government is hiding evidence of intergalactic visitors.
Editors note: The full study is available in PDF format online.