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One of the ways that college costs increase may be related to attempts to actually make college more affordable. According to an op-ed in the New York Times by Noah Bernstein:
In the past, families and students covered their tuition with lump payments at the beginning of each semester. To ease the burden of such large bills — recent data shows that tuition and fees have increased 439 percent from 1982 to 2007 — many colleges have instituted monthly payment plans, while charging zero interest. Even many families that could afford to pay an entire semester upfront find such plans appealing.
Though such plans have undoubtedly allowed a greater number of modest-income students to go to college, they can actually end up unintentionally raising tuition costs. While the plans typically don’t charge a fee for payments made by check or direct deposit, they tack on a hefty charge for credit card payments.
Of course it’s not really tuition; it’s the extra fees people pay in order to pay tuition. These extra fees don’t go to educate (or clothe, feed, and house) students. This money doesn’t even go to the colleges these students attend. The fees go to outside companies.
The companies have contracts with American colleges to process tuition payments. Colleges pass the costs of these contracts back to students and their families.
As Bernstein explains, the total cost of tuition, room, and board at Amherst College, for instance, is $53,370 a year. Even relatively affluent people can’t easily manage to shell out $53,000 at one time. And so Amherst uses a company called Tuition Management Systems to help make tuition payments more affordable.
But TMS charges a 2.99 percent fee for every credit charge transaction. That’s $1,595 a year.
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Rob on August 22, 2011 3:02 PM:
I take advantage of one of these programs, and in fairness, it (and most or all others, I would guess) also allows payers to make payments directly from a bank account, at no cost at all.
fred on August 27, 2011 1:17 PM:
I have used TMS for two sets of tuition at different schools. The charge for their services is fair and run about $100 per school year per tuition. This is a flat fee.
If you pay by check -- there are no additional fees. If you pay by direct deposit (which is a bit of a pain to set up) -- there are no additional fees.
If you want to pay by credit card (you know, by borrowing from the credit card company, even if you pay it off in full when you pay your credit card bill each month) -- it is gonna cost you. And it probably going to cost you the amount that the credit card company would charge if you went to the ATM to *borrow* the money as a 'cash advance'. Credit cards are not 'cash'. They do not pay at par.
If TMS didn't put additional fees onto 'pay by credit card' transactions, then everyone would be paying by credit card to earn frequent flier miles or otherwise benefit from the credit card reward programs -- none of which are provided for free by the credit card issuer.
It is possible the you could force TMS to embed the credit card charges in the negotiated tuition management fee with the universities, but that wouldn't make the costs go away, rather, it would increase tuitions for all, even those who do not use tuition management plans.
Passing along and exposing the usually hidden charges of using credit cards is not something to complain about when discussing college tuition.