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By kclarkmoney
October 7, 2014
Western Kentucky University has one of the highest credit card surcharges.
Western Kentucky University has one of the highest credit card surcharges.
Alex Slitz—AP

It’s getting harder to turn junior’s college tuition bills into free vacations for Mom and Dad.

Wealthy parents have long tried to lessen the pain of paying their kids’ tuition bills by charging the costs to a credit card that pays rewards, with the hope of getting a bit of cash back or a roundtrip flight to Rome out of the deal.

But colleges are now making this strategy less profitable by adding fees for charging tuition, according to a study released Tuesday by Creditcards.com.

The survey of the largest public, private, and community colleges found that 90% of the 100 biggest public universities that accept credit cards charge convenience fees, and almost 70% of the 100 biggest private colleges. (Only 12% of the largest community colleges add credit card surcharges, but community colleges tuition tends to be quite low.)

In most cases, the fees now exceed the value of frequent flier miles or cash back that the parents can earn on a rewards card.

The average reward mile or point is worth less than 2¢, says Matt Schulz, senior industry analyst for CreditCards.com. Meanwhile, the average big college now charges 2.62% for processing tuition through a credit card, according to the survey.

And some schools charge much more. According to the CreditCards.com survey, the big colleges charging the highest fees are:

School State Type Convenience fee rate
Western Kentucky University KY Public 2.99%
Saint Joseph’s University PA Private 2.99%
Roger Williams University RI Private 2.99%
Kansas State University KS Public 2.90%
Ohio University-Main Campus OH Public 2.90%
Kent State University at Kent OH Public 2.90%
University of Akron Main Campus OH Public 2.90%
Bowling Green State University-Main Campus OH Public 2.90%

The Impetus for the Fees

Such fees have become increasingly common in the last decade. A separate survey last year by the National Association of College and University Business Officers had found that 44% of colleges charged a fee for using a credit card, up from 14% in 2003.

Colleges have been adding surcharges in part because they have come under pressure to pare expenses. And credit card companies charge all vendors—including colleges—for processing payments. In 2013, for example, MasterCard’s fees ran from 1.05% to 3.16%.

In addition, schools that do charge fees appear to be encouraging their competitors to follow suit.

“I get a lot of complaints from other schools” that charge fees, says Michael Reynolds, executive director of student financial services at Auburn University, which doesn’t add a surcharge. Reynolds says Auburn absorbs the surcharge—which he estimates at between 1% and 2% of the amount charged—as a cost of doing business.

He estimates that about half Auburn’s tuition bills are put on credit cards. In most cases, he says, it’s just a matter of convenience for the parent or student. But he added that some families do seem to be trying to build up rewards.

The Better Alternative for Most

The fees are just one of many reasons financial experts warn parents away from charging tuition.

Credit card interest rates are usually so high that parents who don’t have enough ready cash to pay off the bill immediately could end up paying thousands of dollars in extra interest, says Kevin Yuann, director of credit cards for NerdWallet.

Anyone who can’t pay cash up front for tuition would really be better off with federal student or parent loans.

Compared to the 15.66% average annual percentage rate on credit cards, federal student loans charge just 4.9% this year, after fees are added in. Parent PLUS loans have a total APR, including fees, of 8.1%.

The federal loans also have much more flexible repayment options, allowing borrowers to stretch out payments for up to 25 years or adjust the payments downwards if their incomes fall. Students working in public service jobs can also get some of their federal loans forgiven.

The Best Reward for the Rest

Absolutely sure you can pay off the big credit card balance quickly? Contact your school to find out whether there’s a fee for swiping.

While the majority have one, there are still several schools that do not charge students or parents extra. For example:

School State Type
Auburn University AL Public
DePaul University IL Private
St John’s University-New York NY Private
The University of Alabama AL Public
University of Nevada-Las Vegas NV Public

And then, assuming there is no charge, make sure you’re getting the most back you can.

Nick Ewen, a frequent business traveler who writes often on rewards at ThePointsGuy.com, says parents with lots of ready cash can turn tuition into valuable goodies.

One British Airways card, for example, offers a free companion ticket to those who spend at least $30,000 a year. And Southwest Airlines offers a year’s worth of free companion tickets to those who earn at least 110,000 points each calendar year.

Or, consider the winners of Money’s Best Credit Cards of 2014. The Barclaycard Arrival Plus World Elite offers two points per $1 spent and miles can be applied to your credit card bill to offset the costs of any kind of travel. Or if you prefer cash back, Citi Double Cash and Fidelity Investment Rewards American Express each give you 2% on every purchase.

With the latter, you can direct your earnings to a 529 college savings account—thereby reducing the amount you have to charge next semester.

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