Can You Pay Student Loans With a Credit Card?
You might be able to pay off a student loan with a credit card, but the process comes with risks.
Depending on your student loan provider, using a credit card to pay your loan off directly might be an option. However, this is not the case with federal student loans. When it comes to private lenders that accept credit card payments, you usually need to pay a processing fee. Other ways of paying off student loans with credit cards include using a third-party payment processor and transferring the balance to a credit card. Even so, each method comes with potential pitfalls.
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Paying a student loan with a credit card may result in lower interest charges, but the opposite might happen as well.
Using a credit card to pay a student loan comes with fees whether you use an intermediary or pay directly.
If you use a balance transfer credit card with a 0% APR offer, you’ll need to pay a balance transfer fee of 3% to 5%.
Benefits to Paying Your Student Loans With a Credit Card
The benefits of paying off student loans with credit cards include being able to save money in interest charges and earning rewards.
Save on Interest Charges
Some credit card providers let you transfer balances from student loans to balance transfer cards with 0% APR offers. These promotional offers typically stay in place for 12 to 21 months. When you transfer your student loan to any such card, you pay no interest charges throughout the promotional period. However, a card’s regular balance transfer rate applies to any outstanding balance at the end of the promo period. In addition, most cards with 0% balance transfer APR offers charge balance transfer fees that usually vary from 3% to 5%.
Depending on the card you get and your student loan provider, you might be able to pay off your loan by using your credit card directly. In this scenario, you might benefit by getting a card with a 0% APR offer on purchases. When your payment toward your student loan counts as a purchase, you pay no interest toward the amount paid for as long as the 0% APR stays in place. Then, the card’s regular APR applies. In most cases, student loan providers charge fees when they accept credit card payments.
If you get a credit card with a welcome offer, you may earn reward points, miles or cash back by meeting a spend-based requirement. For example, you may get 10,000 bonus points by spending $3,000 within the first three months. In addition, a rewards card also gives you the ability to earn rewards, either through a flat rewards rate or through higher reward rates on category-based spending. If you pay off your student loan with a credit card and it counts as a purchase, you could earn reward points, miles or cash back.
Drawbacks to Paying Your Student Loans With a Credit Card
The potential drawbacks of paying a student loan with a credit card tend to outweigh the advantages, all the more so if you don’t do your math ahead of time. As a result, learning of the possible pitfalls is the ideal way to go.
If you use a third-party payment processor such as Plastiq to pay off a student loan with your credit card, you need to account for the fee you will need to pay. Plastiq, for instance, typically charges a 2.85% processing fee. When using a card’s 0% APR offer on balance transfers, you need to factor in the balance transfer fee, which can be as high as 5%. Convenience checks provided by your card issuer may also be used to pay off a student loan. However, make sure that it will not count as a cash advance. Otherwise, you’ll need to pay a cash advance fee.
Higher Interest Rates
Data released by EducationData.org shows that the average student loan interest rate in 2022 stands at 5.8%. Balance transfer rates that apply after a card’s 0% balance transfer APR offer expires typically range from 8.25% to 24.99%. As a result, if you carry forward a sizable balance at the end of a card’s balance transfer promo period, you might end up paying a tidy sum as interest charges. Besides, you also need to account for the one-time balance transfer fee, which can be as high as 5%.
Potential to Hurt Your Credit
Transferring a student loan to a credit card brings with it the potential to increase your credit utilization ratio, which, in turn, hurts your credit score. The credit utilization ratio refers to the amount of credit you’ve used from your total available revolving credit. For example, if you have two credit cards with a combined credit limit of $20,000 and use them to transfer $10,000 from your student loan, your credit utilization ratio is 50% (provided there is no other charge on your cards). From the credit score point of view, this number should be below 30%.
Since a student loan is not a revolving form of credit, it does not factor in your credit utilization ratio. However, when you transfer its balance to a credit card, the effect can be rather pronounced. This might also be the case if you use a credit card to pay off a student loan directly or through a third-party payment service.
Losing Student Loan Protections
If you’re unable to make payments toward your student loan, your loan provider might put you on an interest-only repayment plan or lower the interest rate. Additionally, some student loan payments are paused when you're in school at least part-time. Federal and most private student loans give you the option of pausing payments temporarily. Depending on your loan provider, you might also qualify for forbearance or deferment. With a federal student loan, loan forgiveness might also be an option. However, once you use a credit card to pay off a student loan in any manner, you lose out on all the protections you previously had.
How to Pay Your Student Loans With a Credit Card
The steps you need to take to pay off a student loan with a credit card will depend on how you choose to go about it.
Through an intermediary
When you use a third-party payment processor such as Plastiq, Stripe or PayPal to pay off a student loan, you begin the process online. The service provider you choose charges your card first and then transfers the money to the issuer of your student loan. Payment processors usually charge a fee for using this service.
If your student loan issuer accepts credit card payments, all you need to do is treat it like you would any other credit card payment. Depending on your lender, this could be online or over the phone. In such a scenario, your loan provider may charge you a fee to process the payment.
Start by applying for a balance transfer card that lets you transfer balances from student loans. Upon your card’s approval, you need to submit a balance transfer request by providing details of your student loan. Approval of your balance transfer request is not automatic, and there’s also a possibility that your card provider might approve only a partial amount. If you’re using a card with a 0% APR offer, expect to pay a balance transfer fee of 3% to 5%.
Credit Card Issuers That Allow Student Loan Balance Transfers
Several credit card issuers let you use their cards to transfer balances from different types of loans, student loans included. However, bear in mind that transferred balances don’t earn rewards, and you might need to pay balance transfer fees. Card issuers that typically let you transfer balances from student loans include:
- Bank of America
- Capital One
- Chase (through balance transfer checks or by transferring funds into a qualifying checking account)
- Pentagon Federal Credit Union (PenFed)
- U.S. Bank
- Wells Fargo
- SunTrust Bank
In addition, keep in mind that these balance transfers are always at the credit issuer’s discretion. Those interested in using a credit card to pay their student loans will want to confirm this ability with the credit issuer during the credit approval process or before attempting to make such a payment.
While earning credit card rewards for paying your student loans with a card seems appealing, it may not be worth it. With the added fees, potential for higher interest if you carry a balance and loss of federal protections, using a card to pay your student loans should only be done in limited situations. —Lee Huffman, credit card expert at BaldThoughts.com
Other Questions You May Have About Rewards Cards
Reviewing the answers to other commonly asked questions about whether you can pay a student loan with a credit card will help you make a more well-informed decision.
Now that you know how to pay student loans with credit cards, determine if this might be the best way forward for you. If so, look for a balance transfer card or a rewards card based on your specific requirements to ensure that you come out on top at the end of the day.
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