Is Convenience When Paying Your Tuition Worth a 2.62% Fee?

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People using credit cards to pay for college tuition should expect to pay an average 2.62 percent convenience fee, a recent survey concludes. These convenience fees likely trump any reward points –- especially because credit card companies never throw college tuition into their rotating 5 percent cash-back categories.

Western Kentucky University in Bowling Green, St. Joseph's University in Philadelphia and Roger Williams University in Bristol, Rhode Island, charge the highest convenience fees at 2.99 percent. So paying the $40,420 annual tuition at St. Joseph's with a credit card would add $1,209 to your bill.

Why Do Colleges Charge Convenience Fees

Merchants pay interchange fees to credit card companies -- averaging 2 percent -- for every swipe.

Major retailers are happy to pay those fees. Years of studies have shown customers who put their purchases on credit cards tend to spend more than they'd planned, as opposed those using cash or debit cards. In turn, many credit card companies lure in customers by offering them a piece of the interchange fee pie. Credit card users should absolutely capitalize on this offer by finding the best cash-back cards for their spending habits.

However, customers aren't going to spend more on flat-price bills like tuition simply because they're paying with a credit card. Therefore, these merchants have no incentive to eat those interchange fees, and instead are passing them onto the customer for the "convenience" of paying with a credit card.

When the Convenience Fee Is Worth It

Some people could come out ahead, if they have a 2 percent cash-back card and if the college's convenience fee is low enough.

For example, the University of Houston charges a 1.64 percent fee and accepts Discover (DFS), MasterCard (MA), American Express (AXP) and Visa (V). If bill-payers use the Fidelity Investment Rewards American Express Card or Citi (C) Double Cash card, they'll get an automatic 2 percent cash back. It won't be the $200 they hoped for on a hypothetical $10,000 tuition payment, but $36 in cash back isn't chump change for a one-time payment.

The caveat: Those cash back bonuses are only worth it if the bill is paid on time and in full. If the payer begins to revolve on the payment and owes interest on the $10,000, then the $36 in cash back is worthless.

Shame on Colleges Skimming Off the Top

Requesting that customers cover the interchange fee on such a large bill is understandable, but some colleges actually appear to be skimming some profit off the top with high convenience fees.

MasterCard charges colleges a 1.89 percent (plus 10 cents) interchange fee on its basic core value card and 2.50 percent (plus 10 cents) on the World Elite card, its highest-end product.

Visa charges between 1.80 percent (plus 10 cents) and 2.40 percent (plus 10 cents) for all transactions where the card is not present. This is likely the interchange fee colleges are paying for online transactions.

Other Places With Special Rules on Plastic

Colleges and universities aren't the only merchants charging convenience fees. Other places:
  • Some gas stations, including ARCO.
  • Utility providers. ConEdison (ED), an electricity supplier in New York City, charges a $4.75 service fee for residential bills. The company says it doesn't receive a portion of the fee.
  • Tax agencies. Both state and federal taxes are subject to a convenience fee, often with a minimum of $2.79 or $3.95 depending on the payment processor.
  • Bars and restaurants. To encourage customers to spend more, minimum purchases are $10 to$ 20.
In the end, it's pretty simple. If you don't want to get charged extra for "convenience," then find another way to pay.

Erin Lowry writes for DailyFinance on issues relating to millennials, money and personal finance. She is the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. She is also the brand and content manager for MagnifyMoney.

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