College is very expensive -- and it’s not just tuition you have to pay. You also need to pay for school fees, room and board, food, transportation, books, and more.
Getting an education typically takes years, and you need to support yourself the entire time. That's on top of paying for credit hours you’re earning at your school.
Many people attending college cannot afford to pay out of pocket for their living expenses. For students who can’t afford expenses, using a credit card may be tempting -- but is it actually a good idea to pay for college expenses on a credit card?
In most cases, the answer is no.
Paying for college expenses on a credit card isn’t a good idea because there are better ways to borrow. Student loans have better interest rates, repayment terms, and borrower protections. Credit cards have none of those. Using credit cards can be costlier, damage your credit, and leave with a lot of debt at graduation.
Why you shouldn’t pay for college expenses on a credit card
There are many reasons why you should avoid paying for college expenses on a credit card. Here are four to consider.
You may not be able to get approved for a good card as a student
Using a credit card for college expenses isn’t possible for every young person because many students cannot get a credit card.
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act) requires creditors to confirm sufficient income before lending to anyone under 21. Applicants without proof of income need a cosigner.
Do you have a lot of cash coming in? Do you have a cosigner with a higher income and good credit? If not, you may not be able to get a card in college at all. And if you do, it will often be a student or secured card with limited benefits and a high APR. If you don’t pay your balance in full, interest will cost you a lot.
You’ll likely pay a fortune in interest if you charge college expenses
Credit cards generally have interest rates above federal and private student loan rates. They're higher than personal and auto loans, too.
While there are 0% APR cards that charge no interest for a limited time, the promotional period is usually 15 months or less. Most people won’t be done with school in less than 15 months. And many students won’t have the cash to pay off the card before the promotional rate expires.
You may not be able to afford minimum payments
Credit card companies expect you to make minimum payments every month, even while you’re in school. You can be hit with hefty late fees and penalties if you don’t pay on time.
There’s no option for deferring payments until after graduation when you charge something on a credit card. You can’t just put your credit cards into deferment or forbearance to pause payments, either. So if you come into hard financial times, you'll go deeper into debt.
Miss a payment because of too little cash or because you get caught up in college life can do serious damage to your credit.
With student loans, you may be able to defer payments until you've graduated. Once you've started earning money, you can begin the process of paying them back.
You could hurt your credit score
Using credit cards too much can also hurt your credit score. Your credit utilization ratio is the amount of credit you use relative to how much credit you have available. If that number tops 30%, your credit score will suffer.
Charging a lot of college costs on your credit card could result in exceeding this 30% ratio. That’s especially true if you charge on your card for years during school and pay only minimum payments. A maxed out card, and a resulting reduction in your credit score, could make it difficult to buy a car, rent an apartment, or buy a home when you get your credit checked after graduation.
Why student loans are a better choice
Student loans work differently than credit cards because they’re designed for students.
Federal student loans come with ample benefits for students that credit cards can’t match. Here are some of the benefits of federal loans:
- You pay a low fixed interest rate and some of your interest costs may be subsidized.
- Your payments can be deferred while in school, for six months after graduation, and if you qualify for a deferment after graduation.
- You could put payments into forbearance after graduation if you have financial difficulties.
- You can qualify for student loans regardless of your credit.
- You can choose a repayment plan that works for you. Income-based options cap payments at a percentage of your income.
- The government may forgive your loans if you do qualifying public service work.
Unfortunately, there are limits on how much you can borrow from the federal student loan program. You may not be able to get enough money to pay for tuition and college costs.
If you max out your federal loans, however, private student loans are available. You can generally borrow up to the school-certified cost of attendance -- which means you can borrow enough to cover living expenses.
Private student loans do require you to have good credit and proof of income or a cosigner. And while many offer the option to defer payments while in school and put payments into forbearance during times of financial hardship, your forbearance period is typically shorter, interest isn’t ever subsidized, and you have less flexibility in repayment plans. Still, private loans can cost you less and have better terms than credit cards.
Don’t pay for college expenses on a credit card
As you can see, there are plenty of reasons not to pay for college expenses on a credit card:
- High interest rates cost you a lot in the long run.
- You may not be able to get a good card.
- Your credit score could be damaged by charging a lot.
Paying with student loans is a better approach, as they're designed for students and have better repayment options. Just be sure you max out your federal student loans and take out only as many private loans as you need to pay for the costs of your education and living expenses.