How to Earn Rewards by Paying College Tuition

Before you raise an eyebrow at my suggestion, let me clarify: this strategy only makes sense when you’re chasing a hefty sign-up bonus and can pay off the balance in full.

What's a sign-up bonus, you ask?

 A sign-up bonus is when a bank rewards you with points for spending a certain amount within a short time. For example, "Sign up now and earn 150,000 bonus points after spending $8,000 in 6 months." If you’re new to points and miles, 150,000 points translate to $1,500. However, savvy travelers know these points can be worth much more when transferred to airlines or hotel partners.

Let's put this into a real-world scenario

Your daughter is heading to college, and you’ve been saving for her tuition. You’re eyeing a premium credit card with a 150,000 point sign-up bonus after spending $8,000 in 6 months. You can earn points for college tuition by getting the right card, pay the tuition with it, and then use the college savings to pay off the credit card in full.

Some might ask, “Why use a credit card when they charge a 3% processing fee?” Let's break it down:

• Tuition: $15,000

• 3% Fee: $450

• Total: $15,450
  

Even at a minimum value of 1 cent per point, those 150,000 points are worth $1,500. But if you’re smart about it, you can get much more value.

In this case we will be using this card that gives you 2X points for every dollar spent. So in addition to earning the sign up bonus, you will also earn an additional 30,900 points just by using the card to pay the tuition.

Here is an example of what you get for your points. A business class flight from New York to Rome might cost 56,500 points plus $5.60 in taxes.

That same ticket could cost $4,083 in cash. So, a round-trip business class ticket would be around 113,000 points plus $11.20 in taxes, or $8,166 in cash.

In essence, you’re getting a luxurious round-trip business class experience to Rome for just $450. Not a bad deal, right?

Let's not forget, in addition to earning the sign-up bonus, you’ve also earned at least 15,450 points from the tuition payment. If you signed up for this card that offers 2x points on such purchases, that’s 30,900 points just by using the right credit card!

What if I already hit the sign-up bonus? Does it still make sense to use a credit card?

Maybe... Let’s do the math. If you used the Capital One Venture X, you would still earn 2 miles per dollar. Therefore, the $15,000 tuition plus the $450 processing fee would earn you 30,900 points, but it would cost you $450.

Some banks might value 30,900 points at $309, making this seem less worthwhile. However, those who understand points and miles know you can extract more value. This is why transferring points out of the bank’s credit card portal is so important.

What can you do with 30,900 points?

Imagine you and a loved one want to fly from San Diego to Boston in the fall. The round-trip flight would cost $620 for two people or 62,000 points if booked through the bank’s portal.

Alternatively, you could transfer your points to an airline partner and book the same flights for 24,000 points plus $22.40 in taxes and fees.

In this case, you end up spending $450 plus $22.40 in taxes and get $620 worth of flights. You come out ahead by $147.60, making it a smart move!

As you can see, using a credit card for tuition payments can be beneficial, especially if you earn 2 points per dollar or more.

Always do the math before making these decisions, and remember to pay off the balance at the end of the month to avoid interest charges.