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Home » Can You Pay Student Loans with a Credit Card?

Can You Pay Student Loans with a Credit Card?

Milena PetrovskaKyle DrummondbyMilena PetrovskaandKyle Drummond
07.09.2020
Reading Time: 5min read
9
can you pay student loans with a credit card

can you pay student loans with a credit card

Few investments are as rewarding or valuable than the ones you make in your education. Unfortunately, if you choose the college route, this is not cheap; student loans pay off handsomely in the job market, but student loan debt can also become crippling. The average student who graduated in 2018 owed over $37,000 (in 2005, this figure was only $20,000).

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Even so, this is something you have to deal with if your plans for the future involve having a degree, your parents aren’t wealthy, and you’re not exceptionally good at kicking a football. Since student loans are a necessary evil, it’s essential to spend quite some time thinking about how you can make them a little more affordable. As one example, you can apply for a deferment by taking your education further (as long as you’re enrolled at least half-time), or by joining the Peace Corps. Another interesting question is this: can you pay student loans with a credit card? And if so, should you?

Using Credit Cards to Repay Student Loans

The worst thing about the typical credit card is its high-interest rate: 15% or more, compared to 2.75% for federal undergraduate loans and 4.30% for graduate studies. However, many credit cards come with an introductory interest rate of zero. This feature means you can transfer a balance from another card, make purchases and (in some cases) pay your student loans without making more than the necessary credit card payments. Additionally, many cards will offer you cashback on different kinds of transactions, including when you make loan payments.

Of course, paying for student loans using a credit card doesn’t reduce your debt burden: you owe someone else and still have to make loan payments every month. Aside from the lower interest on loans for student debt, they have some pretty significant consumer protections which you wouldn’t find on a credit card.

For one thing, student loan debt, while difficult to get rid of, is usually discharged (i.e., canceled without having to be paid) in the event of the student’s death or permanent disability. You’ll lose this option if you move student loan debt to a credit card. Under various circumstances, you can temporarily stop making payments on a student loan or even have your balance forgiven. You’ll have no such luck with credit cards unless you declare bankruptcy and successfully petition to have them discharged, leaving your credit score in ruins. In this case, you’ll still be on the hook for any student loan payments you made on the credit card.

How and When to Use a Card to Pay Your Student Loans

When it comes to paying student loans with a credit card, you should be aware and a little scared of the pitfalls of using this strategy. On the other hand, and despite the interest rate, a credit card can be a handy tool for student loan payments as long as you use it strategically.

Using Rewards Cards

In the first place, you should look at credit cards with suitable rewards programs. You can look for cashback on loan payments or find a card that allows you to apply miles or points to your student loan payments (by requesting the cash value as a check or direct deposit). The Bank of America Premium Rewards credit card, for instance, costs $95 a year but awards you between 1½ and 2 points per dollar spent. If you charge at least $3,000 to it in the first three months, you will receive 50,000 bonus points, translating to $500 you can use to pay student loans.

There is one drawback you should be aware of: the Treasury Department doesn’t allow you to use a card to pay your student loans directly, so you may have to either request a cash advance or use a service like Plastiq or PayPal. Private student loan providers typically charge a fee on credit card transactions, too – if you’re spending 2% just using the credit card and only getting one percent cash back, you’re working backward.

Getting a Balance Transfer Card

Aside from rewards programs, banks also try to attract new clients by offering a few months with zero interest on a new card. Though the average interest rate is much higher than that on student loans, you can use this loophole to your advantage: every $1,000 you transfer to a card with a 12-month grace period saves you about $50. These savings, of course, assumes that you manage to pay down the entire balance before the interest rate shoots back up to normal levels. You would also have to choose a no-fee balance transfer card like the BankAmericard for Students ($0 annual fee, 0% APR for the first 15 billing cycles, 0% transfer fee, but does require a decent credit score). Many credit cards also allow you to transfer a portion of your student loans, but charge approximately 3% of the total, wiping out your gains.

Protecting Your Credit Score

When the unexpected happens, and you need to use your student loan payments for stuff like car repair and groceries, putting them on your credit card can keep you from being charged late fees and your credit history from taking a knock. We’re assuming that you can keep up with at least the minimum payment on your credit card – if you find yourself short of cash every month, you should look beyond just student loan payments to balance your budget.

Weighing Your Options

Before applying for a new credit card, it’s always a good idea to get pre-approval: this doesn’t harm your credit score and will give you a good idea for what limit and what interest rate you qualify. You should also check the specific terms very carefully: some credit card issuers, for example, may allow you to make student loan payments but record the transaction as a cash advance instead of a purchase, increasing your costs. That said, some student loan providers don’t accept credit card transactions, forcing you to pay extra for a third-party payment service. It’s essential to do the math, or you may end up refinancing good debt with bad.

Can you think of any creative ways to reduce the burden of student loans? We’re all open to suggestions; please drop us a line in the comment section.

Milena Petrovska

Milena Petrovska

Content Manager
Milena holds a MA in Economic Sciences and has always been passionate about writing for the finance niche. She loves discovering new ways of improving personal wealth as much as she loves to share them with her readers. In her free time, Milena enjoys playing board games and going on road trips.

Kyle Drummond

Kyle Drummond

Financial Expert & Personal Advisor
I work with high net worth individuals and families, helping them achieve their financial goals. My approach begins with a conversation, evolves into a detailed, holistic financial plan and continues with the implementation of financial solutions. I focus on individual, customized investment strategies, risk management, and asset transfer strategies.

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Comments 9

  1. Edvard says:
    2 years ago

    Most of the people have to repay their student loans and there is not easy way to do it. You are starting your career in dept and this is not something you hoped for. Unless you are dept free you have to make plan about paying your loans and have some money foe all the other expenses. If you find a job fast than you should nor worry but maybe the best option is to find some part time job while you are still studying and to start paying the loans on time. As my parents are not wealthy and they were trying to make it easier for me, during the whole period of mu studies I was working whatever part time work I could found so till the end of my studies I had the half of money to repay. Then it was easier because with an university degree I found a job that was enough to pay my rent and the utilities and with some savings to live a normal life and to pay all the loans.

    Reply
    • Sara says:
      2 years ago

      If you want to pay student loans by credit card, you have to be very careful in doing and choose the best credit card options. This means that you have to spend a lot of time researching and choosing the right option. Most of student loans do not accept paying by credit cards which means that you should be careful choosing and applying for the right credit card. Credit card usually have a high interest rate so that is another thing that should be take into consideration. To do not want to end transferring your low interest rate dept into high interest one. Some of the credit cards has quite big cash back and spending $5000 in the first three months can reward you with a sum of $500 cash back. Plus you have to have a good credit history so you should be approved for a credit card. All in all you have to be very careful and explore all the options before make any decisions.

      Reply
  2. Stenford says:
    2 years ago

    You should be very careful with the credit cards in any case not just for student loans. Credit card usually come with the high interest rate and you will finish paying more than you usually have to. I think that the credit cards can be use for emergency only. And to be sure to read the fine prints whenever you try to transfer some loan. Purchasing with them is okay but if they take payment of your student loan as an advance, it means that you will have to pay additional fees for this. Make sure that you have all the options covered when choosing a credit card.

    Reply
  3. Dan G says:
    2 years ago

    Most of the people even can not study the university because of the ridiculous amounts that they have to pay during their studies. It is not something that we admit easily but yes we are limited to study what we want and to go for a better university because if our parents are not wealthy we have to support ourselves and to study at the same time which is not the easiest goal to accomplish. In a country where all the people have to have a equal chance for education this is not resolved as it should be. People are owing millions of dollars in student loans and can’t get on their feet long time after they finish their education. The statistics predict that the student loans will reach $2.0 trillion by the 2023 or 2024 which is enormous sum of money. Some of them still have the student loans at the age of 40 which is really ridiculous. Some of the statistics on the link provided: https://www.savingforcollege.com/article/student-loan-statistics

    Reply
    • Simona says:
      2 years ago

      If you want to pay student loans by credit card, you have to be very careful in doing and choose the best credit card options. This means that you have to spend a lot of time researching and choosing the right option. Most of student loans do not accept paying by credit cards which means that you should be careful choosing and applying for the right credit card. Credit card usually have a high interest rate so that is another thing that should be take into consideration. To do not want to end transferring your low interest rate dept into high interest one. Some of the credit cards has quite big cash back and spending $5000 in the first three months can reward you with a sum of $500 cash back. Plus you have to have a good credit history so you should be approved for a credit card. All in all you have to be very careful and explore all the options before make any decisions.

      Reply
  4. Chang says:
    2 years ago

    Enjoyed reading although the topic is not for enjoying. Most of the students get stuck with student loans and can not find the way out of dept.

    Reply
  5. Ashley says:
    2 years ago

    The best way to unburden your credit loans is to start working at least part time while studying and to help yourself with the expenses. It will help you to gain some working experience and employers are keen on students who are working and studying at the same time. You always have the possibility to work some part time job online and earning significant amount of money while studying. As the pandemic started most of the people are studying and working online, so it is a good time to started thinking about an online jobs. Most student are computer literate and they can found something to work online. If not, there are always part time jobs as waiters, babysitters, delivery services or so. And if you have some IT background such as web developing or graphic design you do not have to worry about your student loan as these jobs are well paid and the payment is per hour.

    Reply
    • Marco says:
      2 years ago

      We all want the best for our kids. To finish the universities and to get well paid job and make families. The truth is that not all of us are able to pay for the university so the kids finish up paying student loans.

      Reply
  6. marina says:
    2 years ago

    Very good tips thank you. Student loans burden as for many years and we have to find the most suitable way to repay them.

    Reply

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