Credit Card Tuition Payment Survey 2014:
Fees, restrictions wipe out dreams of rewards
Statistics enthusiast focused on data-driven content
Students and parents looking to pay a large college tuition bill with a credit card to earn rewards should expect to add a 2.62 percent convenience fee for the privilege of doing so, according to a CreditCards.com survey.
That fee, which would add $262 to a $10,000 tuition payment, is big enough to make paying tuition by credit card unattractive to rewards cardholders, since the fee more than wipes out most rewards.
The survey looked at tuition payment options offered by 300 U.S. private, public and community schools -- the largest 100 of each class of school, based on attendance.
Overall, 260 schools (87 percent) accept credit cards for tuition payments under at least some circumstances. However, tuition payment policies and fees vary greatly among the types of schools and between individual institutions.
The survey found:
- 92 public schools, 68 private schools and all 100 community colleges surveyed accept credit card tuition payments for at least some students.
- Fees are common. They're charged for credit card payments by 83 of the 92 card-accepting public institutions, 47 of the 68 private institutions and 12 of the 100 community colleges surveyed.
- While most colleges accept credit cards, few embrace them: Just 23 four-year institutions accept credit card tuition payments from undergraduate students with no additional fee or restrictions.
- Western Kentucky University in Bowling Green, St. Joseph's University in Philadelphia and Roger Williams University in Bristol, Rhode Island charge the highest convenience fee: 2.99 percent.
- Of the 260 schools that accept credit cards for tuition, 155 take cards from all four major networks -- Visa, MasterCard, American Express and Discover. The remaining schools take one or more of those networks and sometimes even smaller networks, such as JCB and Diners Club.
- The most common restriction on credit card tuition payments is that they may be accepted only online. Eighty-seven percent of public schools and 66 percent of private schools have an online-only policy for tuition payment by credit card.
For detailed findings, see "CreditCards.com 2014 Credit Card Tuition Payment Survey data."
It isn't clear how often credit cards are used as a convenient, temporary tool to pay tuition. With 86 percent of schools accepting credit cards for tuition, the demand is there. But a 2014 study by student lender Sallie Mae reports that just 3 percent of students say they borrow on credit cards to pay tuition. Card networks American Express and Discover said they do not keep track of the number of tuition payments made with their network cards and the schools accepting the payments have different payment record systems.
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Debit card payments are also common on campus. While debit card acceptance was not part of this survey, schools' debit policies tend to follow credit card policies. All the schools surveyed offer fee-free payment methods, such as electronic checks or cash.
card processing costs
Colleges and universities that ban or discourage credit cards for tuition payments cite processing costs as the primary reason.
The cost of processing card payments depends on a school's agreement with its bank, but for some large school systems, the costs can run into the millions. The University of California system says it faced tens of millions of dollars in processing fees and now all schools within the UC system independently decide whether to allow card payments and many -- including all UC schools included in CreditCards.com's survey -- implemented convenience fees or cut card acceptance completely.
The University of Wisconsin Madison has never accepted credit cards for tuition payments. UW Madison Bursar Cathie Easter says the costs to the school would be astronomical. If passed on to the students, it would raise tuition 2 to 3 percent for the school's nearly 30,000 students. For a student with a full-time course load, that hike would add an extra $200 a year to a $10,000 tuition bill, based on approximate in-state tuition rates. Non-resident students would face almost double that amount.
In fact, state funding regulations do not allow UW Madison to build card processing costs into its tuition rates. "A restaurant can build payment processing fees into the costs of the meals they are selling, but state-funded schools have a hard time doing that for tuition because it falls under different restrictions," Easter said. "We're not allowed to put that in tuition and we wouldn't want to anyway. We would rather eat the processing costs, but that would get expensive and take away from the revenue we need to put back into school programs and operations."
Private schools, which turn down credit cards more often than public schools, also cite processing costs and fee restrictions as a burden.
For example, Northeastern University stopped accepting credit card payments on July 1, 2013, after deciding the benefits of card payments no longer outweigh the costs.
"The rapid growth in reward card usage as well as recent banking changes has dramatically increased card processing costs to the University," according to Northeastern's new credit card policy. "This change allows current programs and services to continue uninterrupted without having to increase costs for all students."
value of convenience
Community colleges rank convenience for all parties involved as more important than the costs associated with processing credit cards.
Austin Community College in Austin, Texas, pays approximately $500,000 in credit card processing fees each year, but continues to encourage credit card tuition payments.
According to ACC Vice President of Finance Neil Vickers, the demand drives credit card acceptance. "We've been very supportive of students paying with credit cards for a long time," said Vickers. More than 80 percent of ACC students make credit or debit card tuition payments online, he said.
"Why would we do something to discourage an activity that is also convenient for the college?" Vickers said.
Vickers argues that paying to process credit cards isn't that different from how other payments are handled. Colleges still have to "pay bank fees to deposit checks and cash payments," he explained. "And then when you factor in other payment processing costs, such as having more cashiers on staff to handle the in-person payment lines, you can make a really good argument that it saves everyone money to accept credit card payments, specifically online."
According to Vickers, "The annual processing fees ACC pays haven't increased much in the past 10 years, even though our enrollment and card payments have dramatically increased in that time." ACC, he said, has also negotiated rates down to 1.5 percent. "It's not that bad."
Saint Joseph's University and Western Kentucky University -- two of the three colleges that charge the highest convenience fee of 2.99 percent -- say they have no control over the costs set by card processors.
"Our credit card processing is outsourced through Tuition Management Systems, so we don't handle the payments and have nothing to do with the rate that they set," said Belinda Higginbotham, Western Kentucky University's bursar. "We've worked with TMS for close to 10 years and it's always been like that."
For students and parents, the added fee to pay tuition via credit card may come as a surprise. "Many people aren't used to such fees, unless they have paid their taxes online before, but consumers need to understand that nothing is free in the world, including the convenience of using credit cards," said Ed Mierzwinski, consumer program director for U.S. Public Interest Research Group. "If a university wants or needs to charge an extra 3 percent and you're going to take the convenience of paying with a card, you'll have to pay.
|More survey findings|
Card processors such as Visa and MasterCard "have a tremendous monopoly, so they can charge schools whatever they think they can get away with," he said.
Convenience fees typically come in two forms: a flat rate per transaction or as a percent of the total amount being paid.
The average percent-based convenience fee among the 300 surveyed schools is approximately 2.62 percent. For someone with a $5,000 tuition bill for a semester, that would add $131 to the cost if paid via credit card. Only eight schools out of the 260 that accept card payments charge a flat-rate fee, ranging from $0.75 to $35.
Many schools have partnered with third-party payment processors to further save on the money and time it takes to process payments. While such partnerships cut costs for schools, they can also benefit students. Convenient online portals, real-time account updates and payment plan scheduling are all perks a student may gain access to, said Don Smith, vice president of product management for third-party payment processor Higher One.
"For example, if students don't want to make a credit card payment because of a convenience fee, they can use a direct funds transfer or an international payment option through Western Union services to make a payment in their preferred currency," he said.
Pushing credit card payments online to alleviate the financial -- and technical -- burden on schools is popular among both private and public institutions.
Schools also reduce costs by decreasing the number of payments student account offices have to process in the first place, for example, by allowing only certain students to pay tuition with a credit card.
Here are a few illustrations of such policies:
- George Washington University in Washington, D.C., accepts credit card payments only from students living off-campus.
- Only graduate students at LeHigh University in Bethlehem, Pennsylvania, are allowed to charge tuition and related fees. Undergraduate students are allowed to use plastic only for summer sessions.
- Boston University won't let full-time students pay tuition by credit cards, but permits it for part-time students.
- Only University of California Santa Clara graduate students are allowed to pay tuition online with a credit card.
tuition a costly way to reap rewards
Regardless of diverse school policies, fees and the convenience of credit card payments, should tuition even be charged?
Some say it's nice to have another payment option when paying tuition, eliminating the need to apply for student loans or dig into a savings account. Paying large tuition bills could even rack up some nice rewards if a convenience fee was not charged or was more affordable.
Take Jacob Volkmar, for example. Volkmar attended Southern Illinois University from 2004 to 2008 and his family charged his tuition bill with a travel rewards credit card to help offset the cost of an annual family trip.
"It was logical at the time to gain the travel rewards for large tuition payments, and then just pay the credit card off when the bill came," he said. "It was a win-win by getting the rewards to be used for a vacation by paying tuition that was due anyway."
But Southern Illinois University didn't charge any convenience fees at the time and if it had -- especially the average 2.62 percent rates in place today -- the fees would have outweighed the card's 1.5 percent rewards return. Volkmar now recommends weighing all the costs before charging tuition.
"If you're paying a $200 fee for a $50-$100 reward, then it's not worth it at all," he said.
|Why doesn't my school take Visa?|
For many years, Visa's higher education convenience fee policy didn't mesh well with the other card networks and, as a result, many schools stopped accepting Visa cards or cut credit card tuition payment programs entirely.
Instead of a percentage-based convenience fee for credit card tuition payments, Visa only allowed schools to charge a flat-rate fee, regardless of how large or small a payment was. The other major networks --Discover, MasterCard and American Express -- allowed schools to charge a percentage-based fee.
The Visa Government and Higher Education Program implemented in November 2012 resolved this discrepancy, but many schools have yet to revise their card acceptance policies. According to the CreditCards.com survey, many schools are accepting Visa cards once again, but seven schools surveyed by CreditCards.com still have special notes on their websites explaining why they do not except Visa.
If your college still rejects your Visa card, it's likely it just has to catch up with the card network's policy updates.
Visa did not reply to repeated requests for comment.
Former credit counselor Lee Ellingson racks up airline rewards by using credit to pay for everything, so when it came time to pay for his wife's 22-month master's program, he also used credit. For him, charging the $26,000 tuition bill was cheaper and easier than taking out a private bank loan, but he warns that might not be the case for everyone.
"If you pay the credit bill off in a timely fashion every month, you can actually help your credit score and build your credit history," said Ellingson, business development manager for Consumer Credit Counseling Service of Central Oklahoma. "But if you don't have the budget to do that, taking out a student loan might be a safer option in terms of interest rates."
If you charge a $10,000 tuition bill to a general purpose card with a 10 percent APR and slowly pay it off over five years, you would incur much more interest than you would on a student loan that only has a 4 percent interest rate.
Finally, credit cards should never be used as a last resort for payment, especially as student loan debt balances continue to rise. If you can't pay tuition without a credit card now, you probably won't be able to pay the card balance any time soon, either.
"If the student 'has to' charge tuition, the first thing that person needs to do is step back now," said Catie Schmeisser, a counselor with the Consumer Credit Counseling Service of Northeastern Iowa. "If they've maxed out their student loan offers or aren't eligible at all, consider alternatives. Is taking a semester off to earn more money a possibility? Do you only need to charge one more class versus a whole semester? The student needs to explore and educate themselves on all alternatives so that in the end, they are making the educated choice."
The Credit Card Tuition Payment Survey of 300 higher education institutions from the continental U.S. was conducted in August 2014 by CreditCards.com. The top 100 private and top 100 public institutions were extracted from Integrated Postsecondary Education Data System records according to 2013-2014 full-time, first year undergraduate enrollment statistics. An additional list of 100 community colleges was also pulled for comparison based on 2012-2013 full-time, unduplicated undergraduate enrollment (the data set for 2013-2014 is not yet available). Online-only schools were omitted from this study in all three categories.
The average convenience fee was calculated using all rates provided by each institution that accepts credit card tuition payments and charges an additional fee -- a total of 133 schools across all three institution categories. Flat rate fees were not included in this calculation.
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