Whether you’re short on cash or looking to rack up rewards points, y🎃ou may hope to pay off student loans with a credit card. While using a credit card for student loans is possible in some circumstances, the risks often outweigh the benefits.
It’s important to understand the complexities of this approach before you proceed, so you don’t end up with expensive cr♏edit card debt that ends up costing e🌃ven more than your student loans.
- Can you pay student loans with a credit card?
- Risks of paying debt with a credit card
- When paying with a credit card may make sense
- Alternatives to using a credit card
Can you pay student loans with a credit card?
Most student loan servicers don’t accept credit card payments, and instead require that you make payments via direct deposit or check.💯 In fact, regulations from the Treasury Department prohibit federal student loan servicers from accepting credit card payments. Many private student loans servicers don’t accept them, either.
That said, there are some workarounds:
- Some third-party servicers, such as Plastiq, make it possible to pay your student loans with a credit card for an added fee. These companies typically charge your card and then issue a check or ACH payment to your loan servicer on your behalf. Fees are often around 3% of your payment amount.
- You may also be able to transfer your student loan balance onto a low-interest or 0% APR credit card. After doing so, you’ll pay back your credit card issuer rather than your student loan servicer. However, you typically pay a fee to transfer your balance and may face limits on the amount you can move onto the card. If you don’t pay off your card’s balance before the promotional interest rate expires, you’ll likely be stuck with higher rates than you had before.
- Some credit card companies also issue convenience checks, which you can use to send payments to your loan servicer. This amount is typically added to your credit card balance as a cash advance and commonly comes with hefty fees and interest charges.
Risks of paying student loans with a credit card
While you technically can pay off student loans with a credit card in some cases, there are serious down𒁃sides to this approach. For o♚ne thing, you’ll likely have to pay significant fees.
Plastiq, for example�🤡�, charges a 2.9% fee for credit card transactions, which may be higher than any rewards rate you can earn on your card. Balance transfers, convenience checks, and cash advances generally carry fees as well, in addition to added interest costs.
What’s more, credit cards typically charge hefty APRs if you don’t pay off the full balance each month. According to the Federal Reserve Bank of St. Louis, the average credit card APR in February 2023 was 20.09%. By contrast, the current student loan interest rate on federal Direct Subsidized and Unsubsi♍dized Loans is 5.50% for undergraduates.
“One of the most significant risks is the potential for accruing high-interest debt,” said student loan lawyer Stanley Tate. “Unless you’re able to pay off your credit card balance in full every month, you risk accumulating more debt in the long run.”
In addition, transferring education debt to a credit card means you’ll lose any associated protections or benefits that come with student loans. You may also run into an issue if your credit limit isn’t high enough to cover your student loan payments. Plus, regularly charging large amounts to your credit cards can drive up your credit utilization ratio and hurt your credit score.
When paying student loans with a credit card might make sense
While paying student loans with a c💝redit card is generally not recommended, there are select situ♛ations where it might make sense. For instance, some cards offer an introductory period of 0% APR on purchases or balance transfers.
If you can pay off your balance before that period ends (and any additional fees don’t outweigh your savings), you could use this promotion to pay off your student loan balance at a 0% rate. If you’re still carrying a balance when this period ends, however, you’ll face a high interest rate. You should also confirm the amount you’re allowed to transfer and enꦚsure that it meets your needs.
Using a credit card may also make sense if the rewards you earn will outweigh the fees and interest you haveꦓ to pay. Some cards, for instance, offer lucrative bonuses if you make a minimum spend within your first few months. And if you can comfortably pay off your balance each month, you won’t be charged credit card interest on the amount.
“While I generally advise against it, there might be a few scenarios where [using a c🅠redit card] could make sense,” said Tate. “However, these scenarios require careful planning and disciplined spending.”
| Important: Before attempting any of the above strategies, carefully read the fine print and confirm the fees and interest you will be charged. Compare that with the potential savings or rewards you can earn, and make sure it’s worth the added hassle and risk before moving forward. Lastly, create a plan to pay off your credit card balance as agreed, otherwise you could quickly rack up interest costs that wipe out any possible benefits. |
Alternatives to using a credit card for student loans
Paying student loans with a credit card is risky, but there are more reliable strategies you can use to reduce your education debt. Here are some approaches worth exploring:
- Turn your credit card rewards into cash for your loans: Some credit cards let you redeem your rewards points for cash. After receiving a direct deposit of your cash rewards, consider using that bonus money to make an extra payment on your student loans.
- Sign up for automatic payments: Setting up autopay on your loans can help ensure you don’t miss any payments. Plus, most loan servicers offer a 0.25 percentage point discount if you opt into automatic payments. Find out if there are any other ways to lower your interest rate, too — you might take advantage of loyalty discounts, graduation rewards, or referral bonuses.
- Explore other repayment plan options: If you need to lower your student loan payment, for instance, an income-driven repayment plan could help. Some private lenders may also be willing to adjust your terms if it would prevent you from missing your bills.
- Refinance your debt: If you have good credit, you may be able to snag a better interest rate by refinancing your student loans. You can also choose new repayment terms, as well as combine multiple loans into one. Keep in mind, though, that refinancing federal student loans means you can no longer access federal benefits and protections, so it typically isn’t a good idea if you’re relying on a federal repayment plan or loan forgiveness program.