Karen Swindells charged around $1,000 a semester on a credit card for school. She doesn’t regret her decision.
“If a student knows their limits and what can be reasonably paid off, it’s not a bad idea,” said Swindells, who graduated from Nevada State College in 2007.
Swindells is one of a growing number of students who have taken this route. One 2009 study by Sallie Mae found nearly one-third of college students use their credit cards to pay tuition (up from 24% in 2004). The average estimated amount spent is $2,200.
Since this trend has been on the rise, many have considered the ethics and logistics of paying for college with a credit card.
Is using a credit card for school wise?
For Swindells, using a credit card was the only way she could afford college, since her scholarship covered below half of the expenses, and she didn’t qualify for financial aid. While not many would condemn someone in her position, paying for school on a credit card should be a last resort, according to Christine LoRusso, financial services professional at New York Life.
“Grants, scholarships and student loans, whether private or federal, should always be a first choice,” LoRusso said.
Paying for school this way enabled Swindells to get a degree and build her credit, which helped when she bought a house. Since she paid off the credit card before graduating working one or two jobs at a time, she entered the real world with no debt — unlike many college students.
“You don’t have to go crazy in debt to go to school,” Swindells said. “I didn’t.”
Still, Swindells cautions students before using a credit card for college.
“You have to have financial means behind you to know that it’s going to be paid off,” Swindells said. “You can’t just use it and think, ‘This is money that I don’t have to worry about where it’s coming from or pay it back.’”
It might be obvious advice, but surprisingly it’s not followed by many college students. According to research by five American universities, 70% of American college students have credit cards. Of those students, five out of six don’t even know their interest rates. This suggests many students haven’t formed a specific repayment plan.
Another thing to consider is interest rates. With student loans, they’re usually under 10%, whereas credit card interest rates reach as high as 20% sometimes. The repayment cycle is also different between the two. Payments on credit cards are due immediately, while no payments are due on student loans until six months after graduation.
Because of this, LoRusso advises students to think carefully before charging tuition to a credit card.
“A student must have a steady income and a short repayment strategy before they even consider it,” LoRusso said.
How to say “charge it” when tuition’s due
If you’ve decided to pay for college with a credit card, there are a few ways to go about it.
You could pay the full balance off before graduation, as Swindells did. This could be preferable to paying out of pocket, since many credit cards give you rewards — think airline tickets — and you don’t have to worry about having the money in time for the tuition bill.
If you can’t pay off that balance before graduating, then LoRusso suggests getting on a payment plan.
“Credit cards are a short-term fix,” LoRusso said. “So have a short-term plan to pay off the debt. Calculate the payment, and look at your budget so you know how long it will take to pay it off, before you charge your tuition and books. Shop around for the best card with the lowest interest rate.”
LoRusso, like many credit experts, also suggests not charging more than half of your available credit limit and to not use more than three or four credit cards. It’s also unwise to cancel the card after paying it off, since, according to LoRusso, “When you go to finance that car or house, they look at longevity of credit.”
Regardless if you pay out of pocket or use a credit card or take out student loans, going to college is important. LoRusso just advises people to consider the future ahead of time.
“College is an investment that offers both personal and financial rewards,” LoRusso said. “With today’s shaky job market for young grads and high student-loan interest rates, students need to consider the return on their investment.”
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