I want to put my tuition on a credit card and then pay it off.
June 24, 2013 9:44 PM   Subscribe

So, I pay my surreal tuition with loan money- $15,000 at a time. It dawned on me the other day that its dumb to just let that money slide by without cashing in on it somehow. I hatched a hairbrained scheme: Put the 15k on a credit card, cash in on rewards points / airline miles, then immediately pay it off with the loans. Two Q's below.

So, two Q's: 1- Is there an internet forum that could alert me to the most advantageous way to do this?

2- Is there something I'm overlooking? Provided I pay the full balance ASAP, is there a catch I'm not seeing?
posted by GilloD to Work & Money (23 answers total) 4 users marked this as a favorite
Check in to ensure that you can do this without incurring fees, i.e. run a test transaction if you pay online, or call the institution otherwise. The school bursars I have experience with charge fees if you pay with credit card that would negate rewards points. For them, processing credit cards incurs merchant fees so they typically pass that cost on to you.
posted by treehorn+bunny at 9:49 PM on June 24, 2013 [3 favorites]

This assumes that your educational institution will accept credit cards for tuition. Often you can't pay for really huge purchases with credit cards, because the seller does not want to pay the 2-4% of the price to the credit card company. 2-4% is OK when you're selling a $5 coffee or a $100 gadget, but not so good on a $15000.00 tuition bill.
posted by Joh at 9:49 PM on June 24, 2013 [3 favorites]

I absolutely paid all my tuition online between 2002 and 2011 with a credit card. And paid it off immediately. Lots of Amazon credit back in my case. I can't imagine how else you would pay it in modern times. (But these were state schools, and only the bad year of out-of-state tuition was approaching the amount you're paying.)
posted by ansate at 9:55 PM on June 24, 2013 [5 favorites]

Do you ever actually get your hands on the loan money, or is it directly sent to the Bursar's office from your lending entity? You may not even be able to re-route it.

There might also be trouble in the area of 'getting a loan for X and using it to buy Y', even if in the end you cash Y in and pay for X anyway. Read your loan agreement. It's long and the print is tiny, but your answers very likely lie within.
posted by carsonb at 10:02 PM on June 24, 2013 [1 favorite]

I do this and have had no problems. I am at a private school. I use a card that is flexible with both points and miles rather than one that has just miles.
posted by bolognius maximus at 10:12 PM on June 24, 2013 [2 favorites]

2- Is there something I'm overlooking? Provided I pay the full balance ASAP, is there a catch I'm not seeing?

Yes, the catch is that you don't pay the full balance, and then you're paying a debt with more debt. Hope you don't break your leg and miss a payment!

The other catch is that the reward miles and so forth aren't actually that great. 15K is kinda nothing. Rewards are only useful if this is a continuous practice over many, many years of a working life, such as only using one airline and one hotel chain and one rental car agency for 15K of business travel per month. That's the real target audience of the rewards programs -- the whales that will spend and spend over decades. You're not a whale. You're just a minnow.
posted by Cool Papa Bell at 10:17 PM on June 24, 2013

My school accepted credit cards but charged a 3% fee if you paid this way. More than ate up the 1-2% you typically get from rewards cards. You're not the first person to try this, they know how to keep people from gaming the system.
posted by ficke at 10:35 PM on June 24, 2013 [2 favorites]

1) Your school may charge a percentage fee (as others have noted) for using a credit card. My school did this. I forget the percent (maybe 5% ish?), but any sort of bills that tuition didn't cover or were charged during the year I just ended up using a check to avoid the fee.

2) As someone else noted, do you even see or handle this loan money? My understanding is that with the new education loan system - and from being in college - most loans are direct loans that go to you school to cover tuition, and you get a refund if you qualify for a high enough amount for living expenses. Most private lenders do not do tuition loans much anymore. It's unclear from your posting where your loans are coming from.

3) When do you get that loan money versus when do you pay the tuition? (If you actually can handle the loan money..) If there is any sort of delay in getting the loan money to cover the tuition, you will be paying credit card interest (of what, about 18% to 20%) for that time delay.

Overall it seems the fees wouldn't be worth it. If you want rewards, try saving money for larger purchases and doing that. Also, your tuition and loans are being "cashed in" as they are paying for your education, at a low interest rate.
posted by Crystalinne at 10:47 PM on June 24, 2013

Interest is usually charged if you carry a balance past a certain day of the month. If your balance on this day is zero, then you won't be charged interest. Check with your cc company on how exactly they calculate interest charges.
posted by sid at 11:03 PM on June 24, 2013

Yeah, most schools charge a fee for credit card transactions. I was in a special "corporate partners" program with my master's and they waived the fee because a lot of people paid tuition with corporate Pcards. I paid mine with my personal cc and I have enough freaking Starwood points to last me until the day I die. My husband and I went on a celebratory trip to Europe when I finished my degree and we didn't pay a cent for hotels.
posted by town of cats at 11:21 PM on June 24, 2013 [1 favorite]

I missed the part where you said you are going to pay off the balance with loans. I don't do this, I just pay the card off, but I still don't see any issues with doing it the way you are proposing. Except that many schools automatically use the loans and then give you the excess.
posted by bolognius maximus at 1:43 AM on June 25, 2013

This is how my husband and I paid our tuition for years. Charged it before the due date to our AmEx for points, then used the loan disbursement to pay the AmEx bill.
posted by Jacqueline at 4:12 AM on June 25, 2013

My brother went to a large state school and we opened a cash rewards Discover Card just for that purpose. Discover generally has the lowest merchant fees, and that's the choice that worked out the best for fees/rewards.

My school didn't accept payment by credit card.
posted by phunniemee at 4:40 AM on June 25, 2013

I believe is likely to fall down at the 'pay with loans' stage, even if you can pay by credit card. I've always been at universities where loans and scholarships (at least those coming from the university--I did get handed a check by an organisation) go into the student account and you either pay the balance left over or some weeks later, you get the loan/scholarship money that didn't go to tuition to live on. It's possible your university disburses loan money quite quickly, but the ones I've been to haven't. You could test it by overpaying $5 and seeing how long it takes to get your $5 back, but I suspect the credit card payment could well be due before you had the loan money in hand.
posted by hoyland at 5:13 AM on June 25, 2013

Also consider that putting a large percentage of your credit limit on cards, even if you pay it off montly, negatively affects your credit score. Its called "credit utilization", and its generally a good idea to keep your credit utilization under 50%. So if you have a credit limit of 5k, don't put more than $2500 on in a month, or pre-pay so that the total balance isn't ever above $2500 in a month.

My husband did this with some travel expenses from work. Figured we might as well get points while he lived in a hotel for 2 months right? His credit history looked pretty terrible since it was also short (just 4 years of history). It set us back applying for mortgages by several months while it dropped off his history. But now we can get one domestic plane ticket on points? Yeah. Wasn't worth it.

You might not think you're interested in getting a car loan or mortgage anytime soon, but employers and landlords can also check your credit score.
posted by fontophilic at 5:51 AM on June 25, 2013 [1 favorite]

My mother in law paid for college for my husband and sister in law with credit cards with 0% interest. She was meticulous with watching the dates but when the 0% intro rate on one card expired, she transferred the balance to a new card with 0% interest rate. She ended up with an amazing credit score which she passed on to her kids.

The other thing with credit cards is that it's unsecured debt, meaning in general, if something horrible happened and you couldn't pay, the credit card company could sue you but if you declared bankruptcy, they would settle the debt. Student loans can't be discharged in bankruptcy.

I'm not your financial planner but I think that if you can make it work, you should totally go for it. Check your credit report and score to be sure you're not screwing yourself over but you should check that stuff regularly anyway (which reminds me ...). Good luck!
posted by kat518 at 6:25 AM on June 25, 2013

Places often charge a 2-3% service fee for this stuff if you use a credit card (if they allow it at all). That exceeds your 1-2% rate of return on your rewards credit card.

In addition, $15,000 miles or hotel points doesn't get you very far. That's less than an inexpensive flight and maybe the same as a night at the Westin in Seattle. On top of which, you may have to pay a $75 dollar annual fee on that card, in which case you're making even less.

Finally, there's a logistical problem. Student loans get paid directly to the school, which refunds you the balance for living expenses. In that scenario, this simply doesn't work. Even if you get a personal loan rather than a student loan, the interest rate will be higher and as a result you will lose money.
posted by J. Wilson at 6:44 AM on June 25, 2013

I work at a small college, and I know that we have a partner who operates a web site for accepting one-time payments and scheduled payments (i.e., divide the bill across s number of months).

And their web site says, "For most payment options, no fees are charged" and handles lot of credit cards, so maybe it'd work.

You might need to work a little to get a card with a high enough limit for a new cardholder.
posted by wenestvedt at 7:44 AM on June 25, 2013

I had the same idea. However my son's school charges a 2% fee for using a credit card to pay tuition, which negates the 1% I'd get in Amazon points. However, they require me to charge up his food debit card with a credit card, and there is no fee for that.
posted by COD at 8:06 AM on June 25, 2013

Best answer: If you choose to use travel rewards credit cards, there is a ton of discussion about the various pros and cons at Flyertalk on the Credit, Debit and Pre-paid cards forum as well as on numerous travel bloggers (I like Ben/Lucky, but there are literally dozens of them). If you have good enough credit, the best way to maximize the reward would be to sign up for three or so of the best offers (usually on the order of 50,000 miles for $5,000 in spending) and spread the charges out over the three cards. Done this way, you could easily earn somewhere near 170,000 points spread over two or three different programs, which would be a nice windfall (probably enough for two tickets and a week or so of hotel if you are good with coach and don't require the fanciest hotels). The overwhelming majority of the value in the frequent flyer credit card game comes from sign-up bonuses. I've probably earned over 350,000 miles from sign-up bonuses so far this year.

As cautioned above, you have to be organized and disciplined. Don't pay a transaction fee and don't miss a payment. If they charge you a fee to process a credit card, it will inevitably destroy the value. Be prepared to cancel the card or downgrade it to a no annual fee version when the fee comes around.
posted by Lame_username at 8:23 AM on June 25, 2013 [1 favorite]

I did this for my master's from 2004-2007, but with my own money (one class at a time on the credit card, get it paid off before the next semester starts) and my card was 0% interest so I never owed anything. Just check with your payment office before proceeding to see if they charge you a fee to use a credit card for payment.
posted by jabes at 10:40 AM on June 25, 2013

fontophilic covered what I was going to say. This could have a serious impact on your credit history and credit rating, which, even if you're not in the market for a car or a home any time soon, could seriously affect your job prospects.
posted by xedrik at 3:05 PM on June 25, 2013

ansate: "I absolutely paid all my tuition online between 2002 and 2011 with a credit card. And paid it off immediately. Lots of Amazon credit back in my case. I can't imagine how else you would pay it in modern times. (But these were state schools, and only the bad year of out-of-state tuition was approaching the amount you're paying.)"

The state school I work for will take your credit card, but will stick on a surcharge of like 2 percent. We do this because paying by credit card is among the most expensive way to transact, and rewards cards provide a perverse incentive. Smaller merchants have a harder time passing the card fees on to customers, but card companies are in no position to negotiate with the state.
posted by pwnguin at 10:04 PM on June 25, 2013

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