Channeling Tuition Payments Through Your Credit Card??

[HumbleMD]

Stewart accepts PayPal for tuition...

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[Tired Pigeon]

I'm surprised that they haven't moved this to financial aid.



The balance transfer check often serves as a cash advance with an associated service fee, so look at your terms before doing something like this.

Regarding the student loan/bankruptcy thing, my take was the first person who mentioned it didn't intend to take any student loans but was rather suggesting that everything be simply charged to plastic and then discharged via bankruptcy. This would seem to be rather odd because the person would have had to build up a very good credit profile to have a limit like that only to throw it all out the window so easily.

As to the JohnMadden scheme, schools who haven't caught up to it will eventually. One place I was at would automatically refund my balance to me every Friday into my checking account. If I wanted a cash advance with no fee, I would just go to the website and "pay" the school an amount that I didn't even owe them. It would then turn into a credit balance that would slide back into my checking account.

If I wanted miles or whatever, I could easily just cycle the cash in my checking back around to the credit card company to complete the circle. I'm pretty sure that doing this consciously is illegal, and it didn't even matter to me because all of my cards were maxed out anyway.

Schools that charge a service fee for using plastic (likely covering the vig that they have to kick to the cc company) solve this problem by making it cost prohibitive. I took some online classes a year ago in which they would only take plastic through a third party company (with an associated fee). The third party company had a lot more time to watch for laundering.

None of the above schemes would work at those schools that wait for your loans to post before charging you tuition. Since federal money goes straight to the school and not the student, they are legally required to apply those monies to your outstanding bill before refunding you the remainder.

In the grand scheme of things, this stuff seems pretty labor intensive. The credit card business is very much akin to Las Vegas. The house doesn't like to lose, and if they suspect that you are cheating, they will put an end to whatever you are up to.

CM, your comments about illegality and laundering make it sound like this is some sort of fraud. I pay my tuition on Amex each semester & my school is fine with it (yes, we pay a convenience fee, but it's only one dollar). I generally redeem the 'miles' accrued on Amex from these transactions for airline tickets. Everything is on the up and up -- there's no 'scheme' involved! Since the school accepts Amex, I'm not sure why this would be a problem.

 

[etf]

I wonder...if you have good enough credit for an AMEX charge card that has no limit (not terribly difficult), what is stopping a young student from charging tuition, carrying a huge balance, declaring bankruptcy, then starting during residency build up credit again with the help of a significant other/parents (who are surely glad they saved 250k)?

this is what i did with my brother's private college tuition for 2 years at $38,000 a charge, getting 38k membership rewards points. sadly now the school charges a processing fee if you pay with credit card that is more than the points are worth. they've caught on...

 

[dantt]

Does anybody use a citibank credit card? The rewards program on that credit card is through the "thank you network" and one of the options on that is paying back student loans 1 point to 1 cent. You can typically earn much more than 1 point / dollar spent as compared to cash back cards which only give you 1 cent to 1 dollar. I haven't tried it yet but it looks like it could work. . . .

 

[genX]

Not sure if applies to majority of schools but mine does allow charge payment however they add on a service fee, the same one that the charge company charges them. Might be like 3 or 4% Which for a 30,000 dollar charge that free plane ticket not really free now.

 

[IceMan0824]

Let me try to gather a few things here and see if I can compile the sentiments of the previous posters, and a few of my knowledge here.

1. First, forget declaring bankruptcy. Even if you only want to do it to dissolve consumer (credit card) debt. It really is not worth it. Apart from the fact that there are two type of bankruptcy (chp 7 and 13 (sometimes 11, but used more by businesses that individuals)) you might qualify for, most people aren't too familiar with bankruptcy rules and the stigma bankruptcy creates. With Chp 7, you give up all current assets and they are distributed to your creditors and your debt is eliminated (which is what most people are gawking at), but due to the rules, and the fact that you are on your way to become a doctor, you will probably not qualify and instead get a Chp 13 where you keep your assets, but all your future earnings are controlled by the court who will designate an amount to your creditors. Simply, you will pay it back, but the courts will just help you manage. Sure you can die and hope your kins don't have to worry about it, but do you want to sacrifice that nice house, cars, or any other item in the future that you might need to take out a loan to purchase (because you either will not receive new loans, or the interest rate will bring you to an early grave).

2. I don't know exactly how medical school loans work, but with undergraduate , I did this with grants. Ofcourse, it wasn't planned, but it ended becoming the way I went. My grants were slow in coming, and I ended up paying the balance the grants would have covered upfront with a credit card so I can register for clases and then I got reimbursed and paid off my credit cards.
From what I hear though, the school automatically takes out their tuition (and other fees) from the loan and then gives the student the remainder. Maybe if you paid the amount upfront before school started, this might work, but it just sounds a bit dicey with loans.

3. If you have a credit card to pay off the amount some people are suggesting ($40,000 a year), either you own a business or you have the income to pay off medical school bills on your own. Why worry about loans then? Why jeopardize what sound like a successful business? If you have the money, why worry about $2k, this just doesn't seem like a lot. With my undergraduate degree, this is less than 2 1/2 week of work. Is this what seems so appealing to people?

3. The possibility that something can go wrong is just staggering. I can only imagine that if you get a card that gives that much reward back, then the APR is slightly above what you will get without rewards. Imagine if your loans do not come on month and you accumulate interest, or you go over the limit on the credit card because you had additional emergency charges on said card. If you can pull it off, I hope you consider the risk and reward of this carrying around this much revolving consumer debt.

3. If you really want to rack up cash back, why not pay most things with the credit card, and always make sure to pay off the full charge at the end of the month. This would be a better way to manage debt, credit rating, and still come out on top.

 

[tacrum43]

Not sure if applies to majority of schools but mine does allow charge payment however they add on a service fee, the same one that the charge company charges them. Might be like 3 or 4% Which for a 30,000 dollar charge that free plane ticket not really free now.

Usually there's a cap on the fee of $250 or so.

 

[Doctor~Detroit]

one more criterion by which to choose a med school. cool.

 

[Tired Pigeon]

Not sure if applies to majority of schools but mine does allow charge payment however they add on a service fee, the same one that the charge company charges them. Might be like 3 or 4% Which for a 30,000 dollar charge that free plane ticket not really free now.

That's a huge service fee! Ours is $1.00 per semester - so you're right, that free plane ticket is not really free, it's $1.00.

 

[mlw47]

This is the reason that you can't do this... Jsnuka hit it right on the head

Not true.

Suppose, however, that you actually could pay all of your medical school tuition up front, that is, you have the $200K or whatever in your bank right now sitting there. It absolutely makes sense to:

1) Defer paying for as long as you can. Why? Opportunity cost.

2) Take a low interest loan (if you qualify). Why? Cost of capital. Even if you could pay out everything right now, if you can take on cheap debt, then do it. If a bank is willing to lend you money at 4-5%, and you can earn 10-15% in the market, then you pocket the difference. Which is related to...

3a) Funnel the money through the most adventagous means possible. For instance, if are allowed to pay your tuition by credit card, get a new credit card with 0% APY and pay with that. Again, you pocket the opportunity cost. 0% APY credit cards = money for free! There's no cost of capital! And...

3b) It may be to your advantage to pay your tuition with a credit card if there's something else to gain, eg. cash back or airline mileage. Be careful, however, as those bonuses may be taxable, in which case you're only going to be getting back $(1-your tax grade) worth.


NB: All of this is provided that you actually can make the monthly payments in full.

 

[Sol Rosenberg]

2) Take a low interest loan (if you qualify). Why? Cost of capital. Even if you could pay out everything right now, if you can take on cheap debt, then do it. If a bank is willing to lend you money at 4-5%, and you can earn 10-15% in the market, then you pocket the difference. Which is related to...

Ahh, young idealistic minds. When you find paper at 4-5%, and a surefire way to make 10-15% in the market, let me know.

 

[mlw47]

I agree, no bet is certain (except CD's, and govt bonds).

However, the point remains, if the cost of capital is low enough, then it's worthwhile.

You'd be stupid to turn down free money (cost of capital=0%). It's free freak'n money!

What if it only cost you 1%? 2%? 5%? The line is yours to draw, but certainly do not categorically dismiss the idea of not taking on cheap debt.

 

[Mayday]

Actually - this isn't a bad idea. To do it the way that I'm thinking of wouldn't even take a large credit limit. You pay for your quarter (or semester) on the card, and then as soon as your fin. aid check comes in, you pay off the card. If I started doing this now, it would make flying to med school interviews much cheaper. (This is my freshman year.)

 

[mlw47]

Here are other things you could do with the money.

Suppose you had enough money to fully make your yearly tuition, or make a contribution to a Roth IRA (or HSA, or other tax-preferred account), but not do both fully. If you were able to take on cheap debt (and yeah, the definition of "cheap" is contingent on a few things), you could finance your medical education and invest for your future.

Suppose you want to buy a house in medical school, but you don't have enough money to buy the house outright, and fully pay for your tuition. The bank offers you a mortgage at 8% APY for your house. A different lender offers you a 4% APY loan for your med school tuition. Take on the cheaper debt and save yourself the difference.

Suppose you don't have enough money to pay for your tuition and EAT. You're cr*p out of luck and no matter how you structure yourself, you're going to have to take on debt, either from a bank or on your credit card. Take out as much money as you can from the bank, because surely their terms (4-10% APY) will be much better than the credit card company's (12-25% APY, after initial promotions).



That's another simple, and good example, of how taking on cheap debt can be a great idea.

 

[etf]

well in my brother's case, he got a private loan, so they basically wrote a $50,000 check in his name, which he promptly deposited into his brokerage account and earned interest for the 30 days it took for the $38,000 charge on my amex to come due. the extra $12k he's got working hard in the market. the downside is that there is no deferment - he's paying about $425 a month on this loan, while in school. the interest rate is higher than a federal loan, but with inflation/investment returns, it's not going to matter anyway.

 

[Critical Mass]

Federal loans are discharged when you die.

This is true. My mom took out a bunch of student loans in her 50's and even believes that they are discharged upon the age of retirement. I'm not worried about having to pay them upon her expiration.

 

[Jejton]

Hmm,ok.

So you put it on a credit card, just to go ahead and use loans to pay it off.

Even though you will now still ahve to pay back those loans.

Am I the only one who sees the fallacy in this line of thinking?

The point is to earn the miles or the cashback ( up to 5% on some cards ). If you have good credit and are in a state school it is not unfeasable. Just make sure to pay it pronto as soon as you get the loans.

 

[jsnuka]

For those who are still, possibly, considering this idea.

http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/HowToMakePayingOffDebtPay.aspx

 

[Mayday]

For those who are still, possibly, considering this idea.

http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/HowToMakePayingOffDebtPay.aspx

That doesn't apply. You are not leaving the balance on the card for longer than 90 days, so there is no interest paid (at least with most credit cards). You pay your tuition, get your financial aid check after about a month, and then pay the credit card to a $0 balance. For all but 2 months during the year (3 months if you are on a quarter system) the card would be sitting there at a $0 balance.

 

[jsnuka]

That doesn't apply. You are not leaving the balance on the card for longer than 90 days, so there is no interest paid (at least with most credit cards). You pay your tuition, get your financial aid check after about a month, and then pay the credit card to a $0 balance. For all but 2 months during the year (3 months if you are on a quarter system) the card would be sitting there at a $0 balance.

Now how many people do you know who would have a zero balance on their cards throughout the year?

I can sort of see where some of you were going with this idea, but it would require you to have a balance (of some amount) throughout the year.

Are people disciplined enough to not overuse the card though?

Do you agree that this is just another ploy to get consumers deeper in debt?

 

[TMP-SMX]

Now how many people do you know who would have a zero balance on their cards throughout the year?

I can sort of see where some of you were going with this idea, but it would require you to have a balance (of some amount) throughout the year.

Are people disciplined enough to not overuse the card though?

Do you agree that this is just another ploy to get consumers deeper in debt?

What's the problem? Don't buy on your CC what you won't have in your bank in the next two months. Therefore you never have interest. The tuition is paid for by loans and therefore the money will be in the bank.

 

[alwaysaangel]

Now how many people do you know who would have a zero balance on their cards throughout the year?

A lot of people. You pay off the bill every month and accrue no interest. I've only accrued interest on my credit cards one month the entire time I've had them and that was in the middle of secondary application fees.

 

[jsnuka]

A lot of people. You pay off the bill every month and accrue no interest. I've only accrued interest on my credit cards one month the entire time I've had them and that was in the middle of secondary application fees.

I understand that, BUT in medical school you are on an incredibly tight budget. I think we can all agree on that point.

Things come up and things happen and you cannot get a job in medical school.

So what do you do when the stuff hits the fan?

I am still in the corner of it makes NO SENSE to go this route for a mere pittance.

For those of you who decide to go this route, be careful. you never know what could happen that could create extra stressors during a time when you surely do not need them.

 

[etf]

i use a charge card, so it is expected that the balance is paid in full every month. it's easy to do something when you have no other choice.