Universities deal with tuition paid by credit card

Students like the convenience; some colleges don't like the fees

College students and credit cardsPaper checks are so yesterday, says a 2007 survey conducted by the National Association of College and University Business Officers (NACUBO). As corporate America moves toward "paperless offices," universities and colleges are following suit, enabling students to pay their tuition and fees with credit cards, e-checks and electronic fund transfers.

The survey of 2,000 institutions revealed that 94 percent of the respondents accept credit card payments for tuition and fees. That's a 12 percent increase since the 2003 survey. With tuition costs rising and credit-market disruptions affecting the availability of certain student loan programs, more students are opting to pull out the plastic to pay for their classes.  One in four students has used a credit card to pay tuition, says a 2006 American Council on Education report.

College students and credit cards

• 56 percent of all undergraduates carry at least one credit card in their name.

• Students from families with incomes of $80,000 or more are more likely to carry a credit card than those from families who make less than $40,000.

• 41 percent of students carry a balance from month to month; the median balance is $1,000.

Source: American Council on Education

Haley Chitty, spokesman for the National Association of Student Financial Aid Administrators (NASFAA), says many college students are paying with credit cards before exhausting other options because:

There's a perceived complexity associated with the financial aid application process. "Students think it's not worth applying because they likely won't be eligible, which is often not true," Chitty says. "A student can get a loan even with a low credit score."
A credit card can serve as a quick fix for unforeseen expenses when it's time to pay up.

Consumer Action spokeswoman Linda Sherry says that students might be using their credit cards as temporary "bridge loans" to cover gaps between the tuition due date and receipt of financial aid.

"I also get the feeling that more often it's the parents who wish to pay with a credit card because they want to take advantage of some kind of rewards system on their cards," Sherry says. "I can understand the convenience factor, but the interest rates on credit cards are considerably higher than those on traditional student loans, so if it's the student who's using the card, it's not a very wise way to finance an education. People shouldn't do it unless they can pay their balances in full."

A backlash
Rewards or convenience aside, some learning institutions have decided not to accept credit card payments for tuition. The institutions cite exorbitant merchant fees as the reason. The University of Calgary, the University of Alberta and Boston College have all told students and parents to put their plastic back in their pockets.

Chitty questions whether the no-plastic policy is good for business.

At first glance, he says, it seems to put the institutions "at a disadvantage if they don't accept credit cards; they could be losing out on students being enrolled."

College aid at a glance

More than $130 billion in financial aid was issued to undergraduate and graduate students in the form of grants, federal loans, work-study, and tax credits and deductions.

• In addition to the $130 billion, students also borrowed more than $18 billion from state and private sources.

• Total student aid increased by about 82 percent in inflation-adjusted dollars over the decade from 1996-97 to 2006-07.

• An increase in grant dollars over the past decade covers about one-third of the increase in private college tuition and fees, and about a half of the tuition increases at public, four-year colleges.

Source: College Board data, 2006-2007 academic year

Alternative measures
Some universities that take credit cards are adding a convenience charge to offset the merchant fees. At least a quarter of the surveyed institutions in NACUBO's study that accept credit cards charge a convenience fee.

Central Michigan University, which will pay $1 million in the next fiscal year in merchant fees, announced that beginning in July, it will charge a 2.75 percent convenience fee to students who use credit cards to offset costs.

"Under the current system, students who pay through other methods [than credit cards] are subsidizing the credit card cost of those who choose to pay with plastic," says Steven F. Smith, the university's director of media relations. "But CMU realizes that credit cards are the way many people choose to pay their bills. We want to continue to offer this convenience to those who choose this method of payment."

NACUBO spokeswoman Anne Gross says a growing number of colleges and universities have opted to outsource the credit card processing function to third-party service providers. In this arrangement, the third-party vendor is responsible for the merchant fees.

The University of Washington started using an outside vendor two years ago after experimenting with charging students a $45 convenience fee to offset the more than $200,000 it paid in credit card merchant fees. Sandie Rosko, the university's associate director of student fiscal services, says that extra money didn't help cover the cost, so the university opted to outsource the function.

Utah State University resolved its credit card issues in 2004 by banning Visa payments. According to the university, Visa would not allow the university to charge a convenience fee to cardholders to offset the merchant fee. The university decided the expense wasn't worth it, but Visa views it differently.

In a statement, Visa Inc. said: "We don't believe that Visa cardholders should be penalized by having to pay more because they want to choose a more convenient form of payment. Universities can gain great efficiencies by accepting payment cards, including on-time payment, streamlined account management processes, and reduced expenses that would normally be associated with cash and check handling."

NASFAA's Chitty says that a learning institution's credit card policy is a relative matter.

"It's hard to make a blanket statement about whether universities and colleges are putting themselves at a disadvantage if they refuse credit card payments; there's such a wide variety of factors in terms of tuition costs, the students they serve, endowments and such," he says. "Ultimately, these institutions are going to have the best sense of what to do in their respective situations."

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Updated: 07-22-2018