Lana Oconnell
Paying student loans with a credit card is generally not advisable due to the associated risks and costs. While it is technically possible in specific circumstances, it is often not worth the effort and can lead to higher interest rates and fees. Federal student loan servicers typically do not accept credit cards as a direct payment method, and using a third-party service or balance transfer can be complicated and expensive. However, some private student loan providers may allow credit card payments, but it is essential to carefully consider the potential drawbacks before proceeding.
| Characteristics | Values |
|---|---|
| Direct payment | Generally not possible |
| Third-party payment services | Possible, but with fees |
| Balance transfer | Possible, but with fees and risks |
| Cash advance or convenience checks | Possible, but risky and expensive |
| Rewards | May be earned, but fees may outweigh them |
| Interest rates | Generally higher than student loans |
| Protections | Federal loan protections may be lost |
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What You'll Learn
Third-party payment services
Examples of third-party payment services include Plastiq, which charges a 2.9% fee when using a credit card to pay bills, such as student loans, and a $0.99 delivery fee per transaction. There are also restrictions on which cards are eligible for making student loan payments through these services. For example, you can't use an American Express or Visa credit card with Plastiq.
Other third-party payment services may charge even higher fees, ranging from 3% to 5% of the transaction amount. These fees will add to your overall debt load, and you may also lose borrower protections and benefits associated with federal loans, such as income-driven repayment plans or loan forgiveness.
Using a third-party payment service to pay your student loan bill with a credit card can also lead to double interest payments if balances are not paid off each month. This is because you may have to pay interest on both the student loan and the credit card balance. Additionally, most credit cards have significantly higher APRs than student loans, which can result in higher overall costs.
In summary, while it is possible to use third-party payment services to pay your student loan bill with a credit card, it may not be the best option due to the high fees and potential loss of benefits associated with federal loans. There are other alternatives to consider, such as income-driven repayment plans, refinancing, or deferment.
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Balance transfers
While it is technically possible to use a credit card to pay off student loans, it is generally not advisable. Student loan interest rates are typically much lower than credit card interest rates, and you will likely pay a fee for the transfer.
If you are considering a balance transfer, you will need to find a credit card with a 0% APR introductory balance transfer offer. You will likely need good to excellent credit to qualify for such a card, and you will need to undergo a credit check, provide information about your income, and verify your identity.
If you are considering a balance transfer to escape poor customer service from your lender, or to increase your motivation to pay off your debt, it could be a good option. However, there are several downsides to be aware of. Firstly, the amount you can transfer is limited to your credit limit on the card. Secondly, you will lose federal loan protections by transferring your balance to a private lender, which includes credit cards. Thirdly, while you might get the temporary benefit of 0% APR, this will not last forever, and the interest rate could increase substantially. Finally, balance transfer credit cards typically do not earn rewards, so don't expect to rack up cashback or points by moving your student loan to a credit card.
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Cash advances
While it is technically possible to use a cash advance to pay your credit card bill, it is generally not recommended. A cash advance is a short-term loan that allows you to quickly access funds from a bank or other financial institution. In the case of a credit card cash advance, you borrow a certain amount of money against your card's line of credit.
There are several ways to obtain a cash advance on your credit card:
- Using a convenience check provided by your credit card company
- Withdrawing cash at a bank or ATM using your credit card
- Transferring money through wires or peer-to-peer (P2P) apps like PayPal and Venmo
However, there are several drawbacks and risks associated with cash advances. Firstly, cash advances typically come with steep fees and a higher annual percentage rate (APR) than standard purchases. There may also be limits on the amount of cash you can withdraw. Additionally, interest on cash advances begins accruing immediately, with no grace period, which can lead to higher overall costs.
Before considering a cash advance, it is important to review your credit card agreement to understand the associated rules and fees. It is also recommended to explore alternative options, such as negotiating with your lender for a repayment plan or considering other forms of debt management. While a cash advance may provide a quick solution, it can lead to long-term financial challenges due to the high costs involved. Therefore, it should be used as a last resort and paid back as soon as possible.
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Student loan refinancing
While it is technically possible to pay off student loans with a credit card, it is generally advised against due to the associated costs and risks. Federal student loans, in particular, cannot be paid directly with a credit card. However, there are third-party services, such as Plastiq, that allow you to use a credit card to pay your student loan bill, although they charge a fee for this service.
If you are considering using a credit card to pay off your student loans, it is worth exploring alternative options first, such as student loan refinancing.
However, it is important to note that refinancing federal student loans into private loans will result in the loss of federal loan protections and benefits, such as income-driven repayment plans, loan forgiveness, deferment, and forbearance options. When considering refinancing, it is crucial to evaluate the potential trade-offs and choose a lender that aligns with your financial situation and goals.
Some popular lenders that offer student loan refinancing include SoFi, Earnest, Citizens, and ELFI. These lenders provide competitive rates, flexible terms, and fast, easy, and online processes. It is recommended to get prequalified with a soft credit check to see personalized rates from top lenders and choose the option that best fits your financial goals.
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Income-driven repayment plans
Income-driven repayment IDR plans are monthly student loan payments that are set at an amount that's intended to be affordable based on your income and family size. The Federal Student Aid Office of the U.S. Department of Education offers four types of income-driven repayment plans:
REPAYE Plan
Generally 10% of your discretionary income. Any borrower with eligible federal student loans can make payments under this plan.
PAYE Plan
Generally 10% of your discretionary income, but never more than the 10-year Standard Repayment Plan amount. To qualify, the payment you’d be required to make must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period. You must also be a new borrower.
IBR Plan
Generally 10% of your discretionary income if you’re a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount. Generally 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-year Standard Repayment Plan amount. To qualify, the payment you’d be required to make must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period.
ICR Plan
Any borrower with eligible federal student loans can make payments under this plan. This plan is the only available income-driven repayment option for PLUS loan borrowers with dependents.
To apply for an IDR plan, you need to submit an IDR Plan Request through your StudentAid.gov account. You will need to recertify your income or family size once per year. You can also authorise access to your federal financial information, and the IDR plan will be automatically recertified each year.
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Frequently asked questions
Generally, you can't pay your credit card bill directly with a student loan, but you may be able to use a third-party service or other fee-based options.
Using a credit card to pay off your student loan can help you earn rewards and take advantage of introductory APR offers.
The fees associated with using a credit card to pay off your student loan can often outweigh the rewards. Additionally, you may lose access to certain protections and benefits offered by federal student loans.
