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It's tough to think of a more significant life expense than tuition. If you have young children, the preschool bill can be hard to swallow. With tweens and teens vying for the best private schools, your hope for their future is met with the anxiety of what these opportunities cost. When it's time for college, whether it be your own or your children's degree, the tuition and additional expenses seem to be ever lingering.
Today, let's look at the opportunity such a large expense yields when it comes to earning credit card points and airline miles — a silver lining I actually look forward to when it comes time to pay for school.
Why Pay With a Card?
Credit card rewards far surpass what you may be familiar with from even a few years ago. Transferable bank points like Chase Ultimate Rewards or American Express Membership Rewards can yield an unbelievable value. These aren't your 1% cash back rewards from the 1990's; they're points that can book business and first-class flights, hotel suites, or economy flights to Europe for an entire family. The amount of tuition you have to pay can realistically earn you rebates in the form of credit card rewards to the tune of 5-10% back.
Paying tuition with a credit card may or may not be a foreign concept for you. Those familiar with the idea cite the convenience fee or processing fees many schools charge when using a card. These fees are what the school is charged by the credit card issuers and typically range anywhere from 1-3%.
The fee can negate the value of any rewards you would earn from your credit card, making many parents decline to pay the fee and forego using a card. If the school didn't pass the fees along, they'd be out the percentage themselves. The good news is there are ways to overcome these fees and still come out ahead when using a credit card.
First, there are some schools who still do not charge a convenience fee for paying tuition with a credit card. Money magazine compiled a list of 18 such schools in 2016; I called a couple of them to confirm there still is no fee. I spoke with Auburn University's Billing Receivables Department, listed in the Money article, who confirmed there is still no fee to pay the school directly online with a credit card. As one of the largest universities in the South, I was pretty surprised to hear this. I asked if the school included the credit card issuer's fee in the prices they charge or if they negotiated their rate with the card issuers to a significantly lower rate — a possibility considering the transaction volume the school processes on an annual basis. The representative declined to elaborate on how this was done, but said they were pleased they could offer the service at no fee to their students.
Make sure you call your school's billing department and ask about the convenience fee. There may even be a smaller fee for paying with a card in person rather than online, as some schools contract their payment processing to third-party systems which make money by adding their fee on top of what the credit card issuer charges. If you pay in the school's office, you may be able to reduce the fee.
As an alternative to paying the school directly, there are third-party payment processors which allow you pay almost any bill with your credit card. In return for a small fee, services like Plastiq will accept payment from your credit card and mail your debtor a check which they deposit as if you wrote a personal check. Make sure you spread your referral link for these services around your friends, family, and coworkers so you can build up your payments which you can send fee-free.
Let's look at the potential returns a credit card can earn you when paying tuition. I'm going to use $20,000 a year in tuition payments — on the low end for private universities and grad school; on the high end for private high schools, community colleges, and state schools. Four years (fingers crossed we aren't on the five-year plan) will cost you $80,000 for the piece of paper that puts a check in a block to open doors. $80,000 in credit card spend, not including welcome bonuses, could earn you the following rewards:
- $1,600 from a 2% cash back card
- $2,400 from a 3% cash back card (yes, they do exist)
- 120,000 Chase Ultimate Rewards (minimum) using the Chase Freedom Unlimited® (more details below) I value at $2,400 minimum
- 120,000 American Express Membership Rewards using The Business Platinum® Card from American Express (more details below) I value at $2,200 minimum
When you combine the above rewards with welcome bonuses over four years, you can quickly compound your earnings into a very sizable loyalty portfolio. Consider the average card welcome bonus right now is 50,000-100,000 miles or points, and even just one new card a year in addition to $20,000 in spend a year would net a minimum of 280,000 points or miles, most likely closer to or exceeding 400,000. All at the same time expanding and building a stronger credit portfolio, something you've likely neglected; having available credit is a good thing and will help you increase your credit scores!
Pick the Right Card(s)
There are two main factors you need to consider when deciding on a credit card to use for tuition: the associated welcome bonus and the rewards earned per dollar. Tuition does not qualify for any bonus categories on credit card spend, so you need to pick cards that have a strong base earning rate and a valuable welcome offer. Here are our top recommend cards to use when paying tuition:
- The Business Platinum® Card from American Express — While you must have your own business or sole proprietorship to qualify for the card, if you do then you'll earn 1.5 membership rewards on all purchases over $5,000. If you're pursuing a degree as a part of your profession, this is a perfect opportunity to talk with an accountant about deducting your education expenses while racking up some of the most valuable travel rewards out there.
- The Amex EveryDay® Preferred Credit Card from American Express — You'll earn one point/$ on tuition spend but also earn 50% bonus points on all monthly spend for any statement period where you have at least 30 transactions with the card. The welcome offer can range from 15,000-25,000 points, so make sure to keep an eye on the card.
- Chase Freedom Unlimited® — This no annual fee Chase card earns 3% cash back on all purchases in your first year up to $20,000 spent (after, earn 1.5% on all purchases). Ongoing, the card earns 1.5x Ultimate Rewards per dollar on every purchase, every day with no rewards earning limit. This card is best used in conjunction with a premium Chase Ultimate Rewards earning card like the Chase Sapphire Reserve® listed below, or the Chase Sapphire Preferred® Card, my #1 recommend credit card for points and miles beginners. Once you combine this card with a premium Chase card, you'll be able to make the points earned from the Freedom Unlimited transferable to travel partners like United Airlines, Southwest Airlines, and Hyatt Hotels through a simple combination process.
- Ink Business Unlimited℠ Credit Card — The business version of the Freedom Unlimited. Marketed as a cash back card this no-fee Ultimate Rewards earning card earns 1.5 Ultimate Rewards per dollar spent.
- Chase Sapphire Reserve® — Perhaps the most popular rewards earning card, the Sapphire Reserve is exceptional for travel + dining, travel insurance/protection, and to boost the value of any Ultimate Rewards earned from the Chase Freedom Unlimited®. While the card carries a hefty $450 annual fee, you're almost assured to far surpass that fee with the value received from card perks and rewards.
- Bank of America® Premium Rewards® Credit Card — If you hold $100,000 in assets with Bank of America and/or Merrill investment accounts, you qualify for Platinum Honors Preferred Rewards from Bank of America. This means with a Bank of America Premium Rewards credit card, you'll earn 2.625% cash back on all purchases. Even if paying tuition via Plastiq with a 2.5% fee, you'll make a .125% profit paying college tuition.
Don't forget, if you have a spouse or partner and you're trying to keep your expenses separated, they can pick up their own cards and pay tuition with them, potentially doubling the values I have listed above. Regardless of the path you take, be aware of the Chase 5/24 rule and new account requirements across the banks.
Even if your school charges a convenience fee for using a credit card or if you use a service like Plastiq, once you include an associated welcome bonus from a new credit card, you are still going to come out way ahead with the rewards you earn. Hopefully, you're lucky enough to attend a school that is fee free.
Most importantly, you need to pay credit cards off in full every month so you are not charged interest on any balances. If you carry a balance with interest rates near 20%, using a credit card is a losing proposition. Make sure to join our Facebook Community Award Travel 101, where you can chat all things credit card rewards and ask further questions on maximizing your tuition expense.
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