Think Twice Before Paying for College with Plastic

HESC suggests alternatives to paying for tuition with credit cards

Highlights:

• Credit card interest rates are usually higher than federal student loan rates
• Some colleges add fees for credit card payments
• Explore other payment options

(Albany, NY: July 24, 2012) College tuition bills are due and some students and families may be considering paying with a credit card. According to a recent survey, parents charged an average of $4,764 to help pay for their child's higher education, while students charged an average of $1,357. The New York State Higher Education Services Corporation (HESC), the State’s financial aid agency that helps people pay for college, advises students and families to consider the long-term impact of credit card debt.

The hidden costs of paying with plastic
Convenient as it may be to charge thousands of dollars in tuition and fees – no financial aid or loan forms to complete and easy online payment options -- the simple transaction may become more expensive in the long run. Consider these facts before you say ‘charge it’:

• The national credit card interest rate for consumers with excellent credit scores averages 13 percent, almost double the current rate for federal unsubsidized Stafford Loans for which nearly every student qualifies.

• Credit cards offer no grace period for repayment, so monthly payments begin immediately. If making only minimum monthly payments, the interest on the balance quickly grows.

• Carrying a high credit card balance may leave you close to your credit limit, allowing little room for emergencies. Additionally, high credit card balances may adversely affect your credit rating.

• At tax time, federal loan borrowers may be eligible to deduct the interest on student loans, a savings not usually available to credit card users.

• To cover credit card processing fees and to discourage students and families from using credit cards to pay tuition bills, some colleges are charging an additional two or three percent “convenience” fee; call your college student accounts office to find out if they add a surcharge for credit card payments.

Exploring other payment options
Tuition payment due dates are coming soon, but take time to explore other financing options before using your credit card.

For a small fee, many colleges offer an installment plan to help spread the college bill over several months. There are no interest charges, no credit checks and in some cases, payments may be made electronically. As with any financial commitment, be sure to understand the terms of the agreement, along with the due dates and any penalties for late payment.

Get all the free money available to you in the form of grants and scholarships. If you need additional financing, the federal government offers low-interest fixed-rate education loans.

Alternative, private loans should be the last resort. A careful comparison of the many student loans that are commercially available will help you see how factors such as fixed or variable interest rates and fee amounts affect how much your loan will actually cost. Also review the loan terms, whether payments may be deferred, and any payment options.

Take the stress out of paying college bills by taking time to review your options and becoming a smart borrower. HESC.ny.gov provides information regarding private loans, detailed information about the various types of student loans, interest capitalization, and how to determine the true cost of borrowing.

About HESC: HESC is New York State’s student financial aid agency that helps people pay for college and a national leader in providing need-based grant and scholarship award money to college-going students. At HESC’s core are programs like the Tuition Assistance Program (TAP), numerous state scholarships, federal college access grants and a highly successful College Savings program. HESC puts college within the reach of hundreds of thousands of New Yorkers each year through programs like these and through the guidance it provides to students, families and counselors. In 2010-11, HESC helped more than 413,000 students achieve their college dreams by providing $991 million in grants, scholarships and federal student loan guarantees, including $855 million awarded through the Tuition Assistance Program (TAP).