Venmo and PayPal will no longer just be the apps you use when you owe your friend gas money or make an online purchase. The brands just announced that college students and their families will now be able to use these payment platforms to make tuition payments at select universities.
Bellarmine University, Butler University, Kansas State University, Michigan State University and Texas Tech University are some of the schools on board so far, and more are expected throughout the year.
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"Tuition is one of the biggest payments a family will make, and it should come with the same flexibility and security that millions of people already count on PayPal and Venmo for every day," said Frank Keller, President of Checkout Solutions and PayPal.
While the convenience of this new development probably seems like a no-brainer, there are some risks and things to consider if you decide to make a tuition payment using these platforms.
One thing to note is that colleges may charge you a service fee on top of the tuition payment for using the platforms. This will depend on the individual school, but is worth looking out for as it can add on to the cost of an already expensive payment.
Bryan Dickson, education-policy director at the National Association of College and University Business Officers, told MarketWatch these fees can add up quickly on a tuition bill, comparing the scenario to what already happens with credit card fees.
"If there is a 2.5% credit-card transaction cost for a $25,000 tuition payment, that represents $625 that the institution may have to absorb, or where permitted, pass on to the payer" he said.
Typically banks cover up to $250,000 in consumer accounts using FDIC insurance, but, since PayPal and Venmo are not banks, your account balance is not always FDIC-insured like a traditional bank account. This means you may be putting your college savings at risk by paying tuition via these payment platforms.
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That being said, there are some cases in which your PayPal and Venmo balances are protected by the FDIC.
If you participated in one or more of select PayPal or Venmo branded offerings — such as a PayPal Debit Card Mastercard, buying and receiving cryptocurrency through a PayPal or Venmo branded cryptocurrency account or the Venmo cash a check deposit feature — you may be eligible for pass-through FDIC insurance. This means that PayPal/Venmo will place your eligible U.S. dollar funds in one or more Program Banks, such as Goldman Sachs and Wells Fargo, and you may be eligible for FDIC insurance via this "pass-through" route.
The caveat here is that you have to rely on a third party (PayPal) to properly manage your documents and financial records. Having a middleman in financial matters such as these can be a risk in and of itself.
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This article originally appeared on Moneywise.com under the title: Students will soon be able to Venmo their college tuition — but it may not always be the smartest choice
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