© 2014 Shmoop University, Inc. All rights reserved.
Financial Literacy

Financial Literacy

Home Financial Literacy Credit and Debit Not a Wise Choice for Financing College

Not a Wise Choice for Financing College

College students are more likely than ever to use their credit card to pay their tuition. At a typical college, up to 25% of students use their credit cards. College is expensive, which is why so many undergrads have student loans—credit cards make it tremendously expensive!

Here’s how that looks:

The cost for in-state tuition at a moderately priced college this year averages $21,500 (including tuition, fees, books, etc.). So, for about $100,000 you can get a decent college education. Suppose you work part-time, your parents kick in some, and you finance half of the grand total, then roughly, your loan balance when you graduate will be $50,000.

Using credit cards to pay tuition is not a winning proposition. You would pay twice as much in interest and your monthly payments would be twice as high. Student loans are not only cheaper, they allow longer repayment periods because with a credit card you’ll have to pay at least 2% of your balance each month to avoid defaulting.

Student loanCredit card
Loan Balance$50,000$50,000
APR5%14%
Minimum Payment$50$1,000
Monthly Loan Payment$530$1,000
Number of Payments12076
Cumulative Payments$63,639$75,480
Total Interest Paid$13,639$25,480

That’s $11,841 extra, for the same college education!

People who Shmooped this also Shmooped...

Advertisement
Advertisement
Advertisement