Can You Pay Student Loans With a Credit Card? If you want to know this then you are at the right place.
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The United States has one of the highest consumer debt levels based on student loans. Education Data Initiative estimates that the average student loan balance could reach $40,114.1 by 2023, according to a report on federal and private student loan debt totaling $1.757 trillion.
A student loan debt has prevented nearly 60 percent of American adults from making major financial decisions. Though student loan interest has been reduced in recent years, payments will resume in October, when student loan interest will return. You can use a credit card to repay your student loans, but only in certain circumstances does it make sense.
Can you pay off a loan with a credit card? While it might seem like a convenient solution, financial experts often advise against it. Most lenders do not accept credit card payments for loans due to high fees and interest rates. Attempting to pay a loan with a credit card can lead to increased debt and financial strain, making exploring alternative, more cost-effective repayment methods essential.
Can You Pay Student Loans with a Credit Card?
- 1 Can You Pay Student Loans with a Credit Card?
- 2 What Are Your Credit Card Payment Options for Student Loans?
- 3 Best Cards to Pay Your Student Loans
- 4 Video Guide on Can You Pay Student Loans With a Credit Card?
- 5 Why Paying With a Credit Card Might Not Be a Good Idea?
- 6 Alternatives to Using a Credit Card for Student Loans
- 7 Risks of Paying Student Loans with a Credit Card
- 8 Can I Transfer Student Loan Debt to a Credit Card?
- 9 Alternatives to Paying Your Student Loan with a Credit Card
- 10 FAQs
Most private student loan lenders do not accept credit card payments for federal student loans, and the US Treasury prohibits federal student loans from being paid directly with a credit card. In general, you can repay your student loans via ACH transfer, check, or money order if you have linked your bank account.
However, there are several ways to get around this rule, such as using third-party services, conducting cash advance-style transactions, or transferring balances. Some of these methods work better for you than others, depending on your intended use of a credit card for student loans and how you plan to repay the balance.
What Are Your Credit Card Payment Options for Student Loans?
There are most likely to be cash payments required by loan servicers. You can find out whether you can pay using a credit card by logging into your account and going to your payment options. If it’s an option for you, consider that convenience fees will likely apply. Please check with your lender for details.
There are a few options you can use if you can’t use a credit card to pay your student loans directly:
There are always going to be additional costs associated with these methods. A higher cash advance APR without any grace period could be charged if you use third-party processing, a cash advance, or a balance transfer. The interest you must pay on your credit card balance after the introductory period ends will also be added to your balance.
Best Cards to Pay Your Student Loans
The best credit card to use if you can pay your loans with one will earn you the most rewards. Here are our top picks:
Bank of America Premium Rewards credit card
Using the Bank of America Premium Rewards credit card, you can earn 2 points per dollar spent on travel and dining, 1.5 points on all other purchases, and 1 point on travel. Additionally, there is an annual fee of $95 for the card.
Chase Freedom Unlimited
No annual fee is associated with Chase Freedom Unlimited, which offers 5% cash back on travel through Chase Ultimate Rewards, 3% cash back on dining and drugstore purchases, and 1.5% cash back on all other purchases. Additionally, the card offers a one-year 0% interest sign-up bonus and unlimited 1.5% cash back on all purchases.
Blue Business Plus Credit Card from American Express
With the Blue Business Plus Credit Card from American Express, you will earn two points per dollar on all eligible purchases up to $50,000 yearly, then one point per dollar afterward. Additionally, the card has a $0 annual fee.
Capital One Venture Rewards Credit Card
Capital One Venture Rewards is a credit card that offers 2 points per dollar spent on purchases. There is also an annual fee of $95 for the card.
Citi Double Cash Card
The Citi Double Cash Card gives you 2% cash back on all purchases: 1% when you purchase and 1% as you pay. It also has a zero-annual fee.
Video Guide on Can You Pay Student Loans With a Credit Card?
Why Paying With a Credit Card Might Not Be a Good Idea?
Payments for student loans are generally collected with a credit card, and many companies require cash payments. You can choose from the following alternatives instead, but each has its drawbacks:
- Using a Third-Party Provider to Pay Your Monthly Bill: You can pay bills with a credit card through services such as Plastiq, but there is a transaction fee associated with each transaction (Plastiq charges 2.5%, but the fee can vary). Your loan will be costlier because of this charge.
- Use a Credit Card to Pay Off a Student Loan Balance: Student loans can be paid off with a credit card from private lenders, which some borrowers do for rewards. Banks usually charge transaction fees, which can be substantial if the student loan balance is large. Your credit limit should also be large enough to accommodate your student loan balance but remember to monitor your credit utilization rate.
- Using a Credit Card to Pay off Student Loans: Credit cards allow balance transfers of student loans, which may be beneficial if the offer is 0% APR. The interest-free period will last for a few months, which could make sense if you know you can pay off the loans you transferred in that time. However, you usually have to pay 3% of the transferred balance as a fee, which increases your debt.
- Using a Cash Advance to Pay Student Loans: Cash advances on credit lines may be available from your credit card issuer. The money can be used for emergency student loan payments, but cash advances carry extremely high fees and interest rates exceeding 25%. If this is your last option, consider it a last resort. We will discuss other ways to relieve student loan debt later, so you’re better off looking into them.
Your credit card interest charges will likely hurt you more than those charged by your student loan issuer. Credit card interest fees are high unless you pay off your bill immediately or take advantage of a 0% APR offer. There is currently an average interest rate of more than 17% on credit cards, which could lead to a substantial increase in cost over time.
Alternatives to Using a Credit Card for Student Loans
Student loan repayment with a credit card is risky, but other methods can reduce your education debt. The following are some approaches worth considering:
- Get Cash for Your Loans with Credit Card Rewards: The reward points you earn from some credit cards can be redeemed for cash. Your cash rewards can be used to make extra payments on your student loans once they are deposited directly into your bank account.
- Set up Automatic Payments: It is possible to avoid missing payments by setting up autopay on your loans. You can also enjoy a 0.25 percentage point discount if you sign up for automatic payments with most loan servicers. See if you can get a lower interest rate in other ways – you may be able to get a loyalty discount, graduation rewards, or referral bonuses.
- Consider Other Repayment Options: The income-driven repayment plan could help you lower your student loan payment. Private lenders may also be willing to adjust your terms if it prevents you from missing payments.
- Debt Refinancing: You can refinance your student loans for a better interest rate, depending on your credit history. Additionally, you can combine multiple loans into one and change the repayment terms. If you use a federal repayment plan or loan forgiveness program, refinancing federal student loans will cause you to lose access to federal benefits and protections.
Risks of Paying Student Loans with a Credit Card
There are certain situations where using a credit card to pay off student loans makes sense, but there are also some risks involved, including:
- Loss of Federal Student Loan Benefits: If you transfer the balance of your federal student loans to a credit card, you will lose any federal benefits associated with them. As well as current benefits, such as payment pauses, loan forbearance, income-driven repayment plans, and possible future benefits such as loan forgiveness, these plans provide various benefits. Moving the balance to a credit card is not recommended if you can’t repay federal student loan balances in full right away. Federal student loan benefits are also forfeited when refilling into a private student loan.
- Variable High APRs: The remaining balance is subject to interest at the credit card’s standard APR if you cannot pay your full balance by the due date or the end of your introductory APR period. The Federal Reserve estimates that the average credit card APR will be 20.09% in February 2023. You can expect your credit card’s APR to change if market interest rates increase, which could cost you even more money in the long run.
- Increasing Your Credit Utilization Ratio will Damage Your Credit Score: You can calculate your credit utilization ratio by dividing your current balance by your total available credit. Using your credit card to pay off student loans and carrying the balance will increase your credit utilization ratio, which can lower your credit score. Your credit limit will be reduced if you carry a balance, so you cannot make additional purchases.
Can I Transfer Student Loan Debt to a Credit Card?
Transferring your student loan debt to some credit card companies, such as Capital One, is possible. A student loan card offering a 0% promotional rate might, in theory, save you some money if you transfer some of your debt.
There will typically be a fee associated with this, such as 2% to 5% of the transferred balance, because the transfer itself does not earn rewards, so you’re likely to end up paying more.
Student loan debt does not come with any protections, particularly when it comes to government loans. For example, repayment plans that are extended or income-based are available, as are payment deferments, forbearances, and even forgiveness of debts.
Alternatives to Paying Your Student Loan with a Credit Card
You’re considering using a credit card to pay off your student loans because you need cash on hand. However, there are better options:
Enroll in a Repayment Plan Based on Your Income: Your servicer may be able to enroll you in an income-driven repayment plan if your federal student payments are too high. A portion of your discretionary income will be used to cap your payments – if you’re unemployed, your payment will be zero. The repayment period is also extended to 20 or 25 years. You are forgiven your remaining loan balance at the end of the repayment period.
You Can Request a Deferment or Forbearance: Those with federal or private student loans can ask their loan servicer to pause their payments. You can defer your federal loan payments if you are unemployed or need a break from paying them. Financial hardships can be temporarily paused or lowered by most private lenders. Your loan will accrue interest during any pause, increasing your total debt when you begin repaying it.
Is It Better or Worse to Transfer Student Loan Debt to a Credit Card?
A new credit card for transferring student loan debt will temporarily reduce your credit score. As long as your credit utilization ratio stays below 30%, the increase in your total available credit could boost your score.
How Do Student Loan Debts Affect Your Credit Score?
The appearance of student loans on your credit report is the same as for other installment loans. Maintaining your payment schedule is crucial to maintaining a good credit score.
How Does Student Loan Interest Compare with Credit Card Interest?
A student loan’s interest rate is typically lower than a credit card’s, except that a balance transfer card offers very low rates for a limited period. According to the Bureau of Labor Statistics, federal student loan interest rates ranged from 4.5% to 7% during the 2019-2020 school year. In addition to falling in this range, private loan interest rates can also rise to the mid-teens.
According to the Federal Reserve, the average interest rate on credit cards is nearly 17%, and it can go even higher depending on your credit score and the terms of your card.