Lori Meadows
Whether you can pay your student loan with a debit card depends on the loan provider. While some student loan providers previously accepted debit card payments, others, like Harvard University, have never done so. In addition, some loan providers have stopped accepting debit card payments. For example, Sallie Mae stopped accepting debit card payments in October 2021. However, as of 2021, it was still possible to pay with a debit card over the phone to Great Lakes.
| Characteristics | Values |
|---|---|
| Possibility of paying student loans with a debit card | Unlikely |
| Possibility of paying student loans with a credit card | Possible but not recommended |
| Reasons for not accepting debit cards | Higher processing fees |
| Reasons for not recommending credit cards | High fees, high interest rates, loss of borrower protections, negative impact on credit score |
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What You'll Learn
Some student loan servicers accept debit card payments
It is generally not possible to pay student loans with a credit card directly, and using a workaround like a third-party bill pay service or credit card balance transfer can be costly and complicated. Federal student loan servicers do not accept credit cards as a payment method, and private student loan providers typically follow suit.
However, some student loan servicers do accept debit card payments. For instance, in the past, Sallie Mae accepted debit card payments over the phone, but after October 2021, they stopped accepting this payment method. Great Lakes also accepts debit card payments over the phone.
If you are considering using a credit card to pay off your student loans, there are a few ways to do so, although they are not recommended due to the associated risks and costs. Here are some options:
- Third-party payment facilitator: Services like Plastiq allow you to make monthly student loan payments with a credit card, but they typically charge a transaction fee, such as 2.9% of the transaction amount.
- Balance transfer: Some credit cards may allow you to transfer a portion or all of your student loan balance to the card, especially with a 0% intro APR offer. However, there is usually a balance transfer fee, and you may lose borrower protections and benefits associated with student loans.
- Cash advance: Your credit card issuer may permit you to obtain a cash advance on your credit line, which you can then use to make a student loan payment. However, cash advances come with high fees and interest rates, making them a last resort option.
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Federal student loan servicers don't accept credit cards
Federal student loan servicers do not accept credit card payments directly. This is due to federal regulations. However, there are two ways to use a credit card to pay off federal student loans:
Third-party payment facilitators
Third-party services like Plastiq allow you to make monthly student loan payments with a credit card. However, these services typically charge transaction fees, which can be as high as 2.9% to 5% of the transaction amount, and sometimes additional delivery fees. There are also restrictions on which cards are eligible for making student loan payments through these services.
Balance transfers
Some credit cards allow student loan balance transfers, which could be beneficial if you qualify for an introductory 0% APR balance transfer offer. You'll have a period of months to pay off the balance interest-free. However, you'll need a good credit score, and in most cases, you'll pay a balance transfer fee of 3% to 5% of the transferred amount.
Other options for paying federal student loans include one-time or automatic monthly online payments from your bank account, a check, or a money order. Some student loan servicers also accept debit card payments.
If you're struggling to afford your loans, consider looking into options to reduce or pause payments, such as income-driven repayment plans, deferment, or forbearance.
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Using an intermediary is expensive and a last resort
While it is possible to pay your student loan using an intermediary, it is not recommended due to the high costs and risks involved. Here are some reasons why using an intermediary is a last resort:
High Fees and Interest Rates
Intermediaries charge transaction fees, typically ranging from 2.5% to 5% of the transferred amount. For example, if you have a $500 loan payment, an intermediary might charge your card $515—the payment amount plus a 3% fee—and then send a check for $500 to your lender. This increases your total debt, making it more expensive to carry. Additionally, credit cards generally have much higher interest rates than student loans, further increasing your overall costs.
Loss of Protections and Benefits
Transferring your student loan balance to a credit card means losing the borrower protections and benefits associated with federal student loans. These protections include income-driven repayment plans, forbearance, and forgiveness options. You may also lose out on the possibility of earning credit card rewards, as the cost of the transaction fee with an intermediary will likely outweigh any rewards earned.
Risk of Falling Behind
Using an intermediary to pay your student loan with a credit card can lead to a cycle of debt. You may quickly fall behind on credit card payments, accruing more interest and fees, and end up owing significantly more money.
Alternative Options
Before considering an intermediary, explore other options such as refinancing your loans, enrolling in an income-driven repayment plan, or contacting your lenders to discuss alternative repayment arrangements. These options can provide relief without incurring the high costs and risks associated with intermediaries.
In summary, using an intermediary to pay your student loan with a credit card is a last resort due to the high fees, interest rates, loss of protections, and risk of falling into a deeper debt cycle. It is essential to carefully evaluate your alternatives and proceed with caution to make an informed decision.
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Cash advances are risky and have steep fees
While it is possible to use a credit card to pay a student loan, it is generally not recommended due to the associated costs and risks. One option available is to use a cash advance, but this method is particularly risky and expensive.
A cash advance is essentially a short-term loan offered by your credit card issuer. It allows you to withdraw cash from your credit card account, either at an ATM or via a paper check. However, this convenience comes at a cost. Cash advances typically carry high fees, ranging from 3% to 5% of the transaction amount, and interest rates that can be significantly higher than those for credit card purchases. These interest rates can reach 29.99% or more, and they often start accruing immediately with no grace period.
In addition to the high fees and interest rates, cash advances can also negatively impact your credit score. As your credit card balance increases due to the cash advance, your credit utilization rate rises, which is a crucial factor in determining your credit score. Furthermore, cash advances may also result in the loss of borrower protections and benefits associated with federal student loans, such as forbearance and forgiveness.
For example, let's consider a $500 cash advance with a 5% fee. You will be charged $25 for the transaction, and if you only pay $50 a month, you will end up paying $99.50 in interest and fees. This quickly adds up, and you may find yourself in a cycle of debt that is difficult to escape.
Therefore, while cash advances may seem like a quick solution when you need money fast, they should be considered a last resort. There are often better alternatives available, such as borrowing from family or friends, taking out a personal loan, or exploring options to reduce or pause your student loan payments. It is important to carefully evaluate your budget and consider all your options before resorting to cash advances.
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Balance transfers can be beneficial if you qualify for 0% APR
While it is possible to use a credit card to pay your student loan, it is generally not advisable due to the associated costs and risks. However, one way to do so is through a balance transfer.
A balance transfer is a transaction where you move debt from a high-interest credit card to a card with a lower interest rate, ideally one with a 0% introductory APR. This can be beneficial if you can qualify for a 0% APR promotion, as it will help you save money and pay off your balance more quickly. During the promotional period, you can pay off your debt without accruing additional interest, which can help you make faster progress in reducing your debt.
To illustrate with an example, the Citi Double Cash Card offers an 18-month 0% introductory rate on balance transfers. This means that for 18 months, you can pay off your transferred debt without incurring any interest charges.
However, it is important to note that these promotional periods are not indefinite, and once the 0% APR period ends, you will start paying interest on any remaining balance. Additionally, balance transfers often come with balance transfer fees, which can be as high as 3-5% of the transferred amount.
Furthermore, when you transfer a student loan balance to a credit card, you may lose certain protections and benefits associated with federal student loans, such as forbearance and forgiveness options. It is also important to consider the potential impact on your credit score, as increasing your credit card balance through a balance transfer can negatively affect your credit utilization rate, which is a significant factor in determining your credit score.
In conclusion, while balance transfers can be beneficial if you qualify for a 0% APR offer, it is important to carefully consider the potential risks and costs. It is advisable to use balance transfers strategically and in conjunction with a sustainable repayment plan to ensure that you don't end up with growing debt.
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Frequently asked questions
It depends on the loan provider. Some student loan providers, like Sallie Mae, previously accepted debit card payments but stopped in October 2021. Great Lakes is another provider that accepts debit card payments over the phone but not online. Federal student loan services do not make money from interest on loans, so they are less likely to accept debit card payments.
Debit card transactions have higher processing fees than ACH transfers, which are typically free.
With most federal and private lenders, your options for paying your student loan bill include one-time or automatic monthly online payments from your bank account, a check, or a money order. Some student loan servicers also accept third-party payment facilitators like Plastiq and PayPal, but these services typically charge a transaction fee.
It is not recommended to use a credit card to pay your student loan. While it is technically possible through a third-party payment facilitator or a balance transfer, you will likely pay an added fee and higher interest rates. You will also lose borrower protections and benefits associated with federal student loans, such as forbearance and forgiveness.
