Know The Risks Of Credit Card Debt
The state Higher Education Services Corporation (HESC), a financial aid agency that helps people pay for college, advises students and families to consider the long-term impact of credit card debt.
College tuition bills are due and some undergraduates and their parents may be considering paying them with a credit card. According to a recent survey, parents charged an average of $4,764 to help pay for their child’s higher education, while students charged an average of $1,357.
Convenient as it may be to charge thousands of dollars in tuition and fees, the HESC noted in a press release, the simple transaction may become more expensive in the long run. The agency advises students and parents to consider the following before charging:
– The national credit card interest rate for consumers with excellent credit scores averages 13 percent, almost double the current rate for federal unsubsidized Stafford Loans for which nearly every student qualifies.
– Credit cards offer no grace period for repayment, so monthly pay- ments begin immediately. If making only minimum monthly payments, the interest on the balance grows quickly.
– Carrying a high credit card balance may leave a customer close to their credit limit, allowing little room for emergencies. Additionally, high credit card balances may adversely affect credit ratings.
– At tax time, federal loan borrowers may be eligible to deduct the interest on student loans, a savings not usually available to credit card users.
– To cover credit card processing fees and to discourage students and families from using credit cards to pay tuition bills, some colleges are charging an additional “convenience fee” of two to three percent; students should call their accounts office to find out if they add such a surcharge for credit card payments.
The HESC suggested that college students and their families take time to explore other financing options before using a credit card.
For a small fee, may colleges offer an installment plan to help spread the college bill over several months. There are no interest charges, no credit checks and, in some cases, payments may be made electronically. As with any financial commitment, students and parents should understand the terms of the agreement along with due dates and possible penalties for late payment.
Students should get all the free money available to them in the form of grants and scholarships. If a student needs additional financing, the federal government offers low-interest, fixed-rate education loans.
Private loans should be the last resort, the HESC advised. A careful comparison of the many student loans that are commercially available will help borrowers see how factors such as fixed or variable interest rates and fee amounts will affect how much their loan will actually cost. Borrowers should also review the loan terms, including whether payments may be deferred and payment options.
For more information on financial aid programs, visit www.hesc.ny.gov.