Can You Pay for College with Frequent Flyer Miles?

Man, travel, airport
Source: iStock

Many airlines have made it harder in recent years for travelers to redeem frequent flyer miles for points. That’s left some people with thousands of reward miles sitting in their account and no way to use them for a flight they want. Now, some can put those miles to good use by redeeming them for credits that can be used to pay for college tuition or student loans.

Members of Air Canada’s Aeroplan rewards program can trade in 35,000 miles for a $250 HigherEdPoints credit, which can then be used to pay tuition at schools like York University, University of Windsor, and Ryerson University. The credits can also be used to pay off loans from the Ontario Student Assistance Program and Student Aid Alberta and for tuition at a handful of private K-12 schools and community and technical colleges.

Suzanne Tyson, who founded HigherEdPoints in 2013, told Bloomberg that $125,000 in certificates had been redeemed so far. One beneficiary of the program is Charles Bernatchez, a 26-year-old graduate of the University of Alberta, who used 210,000 points to pay off $1,500 of his $40,000 in student loans. He amassed the points by asking friends and family to donate miles to his account and by using a miles-earning credit card when making reimbursable purchases for his job and volunteer work.

HigherEdPoints currently has only one loyalty program partner and its credits are only good at Canadian universities and two medical and veterinary schools in the Caribbean. But the company isn’t the only one trying to turn rewards points into a tool to help people pay for their education.

college graduation
Imeh Akpanudosen/Getty Images for UCLA

People who sign up with Upromise can earn cash back from activities like shopping online and dining at participating restaurants. The company, which is owned by student loan giant Sallie Mae, also has a credit card that offers 1% cash back rewards on all purchases. Money earned through Upromise can be used to pay down eligible Sallie Mae loans, transferred to a 529 plan or high-yield savings account, or paid out via check.

Participants in the Sage Tuition Rewards program earn points for activities like investing with certain financial institutions. Points can then be redeemed for tuition discounts at participating private colleges and universities.

Citibank’s ThankYou Rewards program offers student loan rebates that can be used to pay off college debt at any financial institution. Rewards start at $25 for 2,500 points. Cash-back credit cards are another way to earn extra money to pay off a student loan or cover college costs.

In some cases, you may even be able to use your card to make student loan or tuition payments, potentially racking up extra rewards. Getting $1% cash back on a $10,000 tuition payment translates into a $100 discount. If you’re earning bonus rewards, like extra miles or points after charging a certain amount to your card, the payoff can be much greater.

But before you whip out your credit card, make sure you know what you’re getting into. Some loan holders and schools won’t accept credit card payments, and others will only do so for a fee, which will often cancel out any benefit you’d get from using a card. Fifty-six percent of colleges and universities in the U.S. accept tuition payments via credit card without charging a fee, reported. You also need to be the kind of person who pays their credit card bills promptly, as carrying a balance quickly erases the value of any rewards you earn.

cash and credit cards
Source: iStock

“[A]ny points or miles you earn on credit cards are essentially negated by interest and finance charges (which are unfortunately much more expensive than student loans), so you should only charge tuition to a credit card if you can pay the balance off in full,” explained Nick Ewen in an article for The Points Guy.

Some people will go to great lengths to use rewards to get a tuition break. Take Jonathan Hood, a Ph.D. student at Auburn University who in 2012 paid a semester’s worth of tuition (about $4,500) with money he earned from rebates, Business Insider reported.

Yet the promise of rewards, whether it’s free tuition or some other perk, can be a double-edged sword. A 2010 study by researchers at the University of Chicago found that credit card incentives enticed people to spend more. Rather than busting your budget to earn a modest reward, it probably makes more sense to take that money and use it to pay off debt directly or cover an upcoming tuition bill.

Follow Megan on Twitter @MeganE_CS
Want more great content like this? Sign up here to receive the best of Cheat Sheet delivered daily. No spam; just tailored content straight to your inbox.