In an ideal world, students could make it through college without taking on debt.
The reality, of course, is that most college students can’t pay for their education outright and rely on student loans to make up the difference between scholarships and grants, and their remaining balance.
And a small number of families – 3 percent, according to a Sallie Mae study – pay for tuition with a credit card, CNN Money recently reported.
Charging that college education might be more costly than you realize, and should be the last resort of the debt options. Here’s why:
- Extra fees. Many schools charge a special convenience fee for doing so, which could add up to an extra $3,000 over four years for a private school student, according to CNN Money. These convenience fees average 2.62 percent.
- Higher interest rates. “In general terms, an interest rate on a credit card is going to be higher than most student loans, which will add additional debt to the original amount,” said Brittania Morey, director of communications at the Iowa College Access Network.
- Repayment starts now. While federal student loans offer deferred payments and a variety of repayment options, credit card payments start immediately, Morey said.
“Accumulating massive amounts of debt with large interest rates while in college creates an unstable foundation for post-college life,” Morey cautioned. “Large debt limits graduates’ ability to make larger life decisions, including buying vehicles and houses, and many students are postponing marriage due to large debt.”
Instead of paying your tuition with a credit card:
Having a plan in place before college even begins is key to coming out on top with those college costs. Morey urges families to follow these steps to start creating a successful plan:
- Always apply for financial aid, specifically the FAFSA form. Anyone who completes a FAFSA application and is in good academic standing is eligible for federal student loans, which have low interest rates, deferred payments and a variety of repayment options.
- Determine your career path’s starting salary and your ability to repay your debt. Student loan debt shouldn’t exceed the average starting salary for your intended career. “If college costs are exceeding this recommended limit, students should consider alternative options, such as a less expensive school, payment plans in conjunction with student loans or trying to work more during summer months to increase available savings,” Morey said.
Want to see where your family’s college savings plan stands? Use Dupaco’s saving for college calculator.
By Emily Kittle