Friday, March 29, 2024

Parents and students advised to not use credit cards to pay college expenses

credit cardsFreshmen who are coming to one of the seven colleges in the Dallas County Community College District’s system this fall likely are excited to start their first college experience in just a few weeks. However, many new students might be worried about paying for their education. After all, tuition is not the only cost they must pay – they need to buy expensive textbooks, which can cost hundreds of dollars every year; pay for monthly living expenses, such as food and rent; and they probably will have to purchase other necessities, too.

Some of these students, or their parents, might be tempted to use a credit card to pay for all or part of those expenses.

Although the Credit CARD Act of 2009 requires adults under 21 years of age who apply for a credit card to have a co-signer or have proof of independent income, new and returning students over that age might have one or more cards.

Keith Baker, a certified financial planner and professor of personal finance at North Lake College in Irving, said students and parents should be careful before they swipe their cards, especially if they don’t pay the monthly balance in full.

“Credit card payments are due every month, with no deferment, forbearance, or forgiveness. This has the effect of causing students to quickly stumble into debt, devastating their credit ratings and their capacity to obtain credit for critical needs, such as a car or an apartment,” Baker said.

Only a small fraction of parents and students used credit cards to pay for college, according to a study published this year by Sallie Mae.

According to the study, in academic year 2014-2015, two percent of parents charged an average of $3,868 to pay for part of their children’s tuition, and three percent of students paid an average of $1,410 in educational expenses with their cards.

“The reason for this low percentage use is that credit cards often have interest rates that start around 18 percent, and this can be magnified even more with late or missed payments,” said Baker.

But are there any benefits to using a card, such as cash rewards, points or miles? Even if students plan to pay off the balance every month, they still need to consider certain costs.

For example, while DCCCD does not charge a service fee for using cards, some schools add a surcharge to credit card payments. A survey by creditcards.com found that a large percentage of schools do accept credit cards for tuition, but many of them add an average of 2.62 percent in convenience fees. That translates to $262 for every $10,000 charged. Western Kentucky University, for example, tacks on an extra 2.99 percent, one of the highest fees charged, according to the survey. Such transaction fees easily wipe out any cash back, miles or points that users might get in return for charging tuition or book expenses.

Baker said using credit cards “to finance a student’s college education is a bad idea, considering the alternatives of student loans, where there are many benefits aside from much lower interest rates.”

“I would never as a certified financial planner recommend the use of credit cards as a financing alternative for college funding,” added Baker.

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