Colleges decline credit card tuition payments
By Cara Nissman • Bankrate.com

In the past decade, using a credit card to pay tuition bills had some definite benefits: You could earn a stack of rewards points quickly, it was a quick source of cash to pay the bills or it was simply convenient.

But now, more and more parents and students are being forced to pocket the plastic each semester as fewer universities accept credit cards for tuition payments.

Postsecondary institutions, ranging from two-year community colleges to four-year private universities, are staging a fee backlash.

"It's across the board," says Randy Coleman, the director of treasury services at Utah State University. "Everybody I talk to at cash-management conferences is hurting."

Utah State changed its policy in 2004 after more than a decade of swallowing a merchant fee of approximately 2 percent per tuition payment. The school of nearly 24,000 enrolled students decided it could no longer accept Visa credit-card payments.

Merchant fees to blame
"What was killing us was Visa would not let us charge our students a convenience fee to make up for the merchant fees," says Coleman. "We were paying $350,000 in merchant fees."

Boston College, which also paid about 2 percent in fees for each tuition payment and had more than $70 million in credit card transactions in 2002, stopped accepting credit cards for tuition payments altogether three years ago because it did not pass the fees on to the school's more than 12,500 students.

"It was a loss every year for the university," says spokeswoman Kathleen Sullivan.

The University of Washington started accepting credit cards for tuition payments four years ago, but school officials are already considering ending the policy. A fee of $45 added to each tuition payment has not kept the school of 40,000 students from experiencing an annual loss.

"We are hoping we can come to an agreement with the credit card merchants for a better flat-fee situation to make up for the loss, but we are at a critical point here," says Ruth Johnston, senior associate treasurer. "We are going to get together and see what we can do before the term starts, but if we can't come to an agreement, we are probably going to dump the credit cards."

Alternative ways to pay
Maybe "dumping" the credit cards wouldn't be such a bad thing -- especially for students paying their own tuition. Undergraduate students have an average outstanding balance of $2,169 in credit card debt, according to a Nellie Mae study, and it's not all going to kegs and clothes. About a quarter of students who have credit cards billed to them use their credit cards to pay tuition, according to an American Council on Education report. Fifty-five percent of students who charge their tuition carry a balance.

Forgetting about the frequent-flier miles, if parents and students are using credit cards to pay for tuition because they can't dole out a lump sum, a better move, say college experts, would be to eschew high interest rates by using an interest-free payment plan offered by their colleges, in partnership with monthly payment programs, such as TuitionPay through Sallie Mae or Tuition Management Systems. These companies allow families to sign up for a five- or 10-month payment plan with an enrollment fee ranging from $30 to $60, depending on the school.