Lana Oconnell
Paying off student loans with a credit card is generally not possible directly, and workarounds like third-party payment services or credit card balance transfers can be costly and complicated. However, some private lenders will allow you to transfer the balance to a credit card, and certain credit cards offer benefits such as 0% introductory APRs, cash-back rewards, and bonus points. Before considering this option, it is important to understand the risks and costs involved, as credit card interest rates are typically much higher than student loan interest rates.
| Characteristics | Values |
|---|---|
| Possibility of direct payment | Not possible |
| Third-party payment facilitators | Plastiq, PayPal |
| Balance transfer | Possible, but may not earn rewards |
| Cash advance | Possible |
| Convenience checks | Possible |
| Loss of loan protections | Forbearance, forgiveness |
| Credit utilization | Below 30% |
| Interest rates | Credit cards > Student loans |
| Benefits | Rewards, 0% APR |
| Risks | High fees, reduced repayment options |
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What You'll Learn
Third-party payment services
If your lender doesn't accept a credit card as a form of payment, you can consider using a third-party service. Third-party payment services such as Plastiq, Doxo, or Paypal can make loan payments on your behalf with a credit card. However, you will be charged a fee for each transaction, which can range from 2.9% to 5% of the transaction amount, plus a delivery fee in some cases. These charges will add to the cost of your loan, and not all credit card issuers allow this option.
Using a third-party service to pay student loans with a credit card can be a great option if you're trying to meet a credit card spending requirement or earn rewards. For example, if you have a card that earns 2% cash back on every purchase, you could earn $704 in cash-back rewards by paying off a $35,210 student loan.
However, it's important to carefully evaluate the pros and cons before using a credit card for student loan payments. The cost of the transaction fees will likely outweigh any value you get from rewards. Additionally, using a credit card to pay your student loans can increase your credit utilization, which can negatively impact your credit score.
If you're considering using a third-party payment service to pay your student loans with a credit card, be sure to read the fine print carefully to understand the eligibility requirements and costs involved.
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Balance transfers
Firstly, federal student loan servicers do not accept credit card payments, and private student loan providers also rarely do. This means that a third-party payment provider or a balance transfer may be required, which can be costly and complicated.
Secondly, even if a balance transfer is allowed, there may be limits on the amount you can transfer, and you may be charged a fee for the amount you transfer or the number of transfers you perform. This fee is often 3% to 5% of the transferred amount, which can quickly add up and negate any interest savings.
Thirdly, if you are unable to pay off the balance before the 0% APR promotional period ends, your interest rate will increase, and you will likely pay more interest than before. This can be significantly higher than the interest rate on your student loan, and you will also lose any federal loan protections that you previously had.
Finally, increasing your credit card balance by paying off student loans with a balance transfer can negatively affect your credit score. As your credit card balance rises, so does your credit utilisation rate, which is the second most important factor in your credit score after payment history.
Therefore, while it is technically possible to pay off student loans with a credit card via a balance transfer, it is generally not recommended due to the high costs, risks, and negative impact on credit scores.
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Credit card cash advances
While it is technically possible to use a credit card cash advance to pay off your student loans, it is generally not recommended due to the associated risks and costs.
A credit card cash advance allows you to withdraw cash from an ATM or a bank, up to a specified limit. This cash can then be used to pay off your student loans directly. However, cash advances typically come with higher interest rates than regular purchases, and these interest charges start accruing immediately, with no grace period. There may also be steep fees involved, ranging from a flat rate to a percentage of the amount withdrawn. These factors can lead to growing debt and financial strain if not carefully managed.
Using a cash advance to pay off student loans can also negatively impact your credit score. Late payments on cash advance balances can contribute to negative credit reporting, and a high balance relative to your credit limit can diminish your creditworthiness. If the cash advance balance is not repaid promptly, the long-term effects on your financial health can be significant.
Additionally, transferring a student loan balance to a credit card results in the loss of consumer-friendly student loan repayment options, such as forbearance and forgiveness. Federal student loans, in particular, offer benefits like payment pause, loan forbearance, income-driven repayment plans, and potential loan forgiveness, which would be forfeited if the loan is transferred to a credit card.
Before considering a credit card cash advance to pay off student loans, it is essential to explore alternative options. These may include refinancing your loans, signing up for income-driven repayment plans, or using third-party payment services. While these options may still incur fees, they can provide a more cost-effective and less risky approach than cash advances.
In summary, while credit card cash advances can provide quick access to cash for paying off student loans, they often come with high-interest rates, fees, and potential negative impacts on your credit score and loan benefits. It is crucial to approach cash advances with caution and have a clear repayment plan to safeguard your financial future.
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Credit card rewards
If you have a student loan servicer that accepts credit card payments, you can earn credit card rewards by paying your student loan bills. However, it is important to note that many student loan servicers do not accept credit card payments.
When using a credit card to pay off your student loans, it is best to use a 0% intro APR card to avoid interest. Additionally, ensure that the value of the rewards is greater than the fees for using a credit card for your student loan payments.
- Sallie Mae Accelerate Card: This card offers 2% cash back when used to pay down student loans and 1.5% cash back for other uses. It also offers a 25% bonus on cash back rewards that are used to pay down any federal or private student loans.
- Laurel Road Student Loan Cashback Credit Card: This card offers 2% cash back when used towards student loans and 1% for everything else.
- SoFi Credit Card: This card offers up to 3% cash back for a year when you set up a direct deposit with SoFi. After that, you earn 2% cash back redeemable towards paying down SoFi student loans.
- Bank of America Premium Rewards Card: This card earns 1.5 points per dollar spent on all purchases. If you're a Bank of America Preferred member, you can earn up to 2.62 points per dollar spent.
- Citi Double Cash Card: This card offers a simple earnings structure, giving you 2% cash back on every purchase (1% when you buy and 1% when you pay your bill).
- Capital One Venture Rewards Card: This card earns 2 miles per dollar spent across all purchases. These miles can be transferred to airline partners and hotel loyalty programs.
- Chase Freedom Unlimited: This card earns 1.5% cash back on all purchases. If you have another Chase card that earns Ultimate Rewards points, you can earn up to 5% cash back on travel booked through Chase Travel.
- Upromise Mastercard: This card offers a 1.529% rate on all purchases, with cash back automatically deposited into your CollegeCounts 529 account once you've earned at least $50.
- Fidelity Rewards Visa Signature Card: This card offers an unlimited 2% back when you redeem rewards into qualifying Fidelity accounts, including a Fidelity-managed 529 college savings plan account.
It is important to remember that credit card rewards may not be enough to cover all your college costs and should be used as a supplementary tool. Additionally, using a credit card to pay student loans can be risky, and you should only do so if you can pay your credit card bill in full and on time to avoid interest and late fees.
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Student loan refinancing
For example, if you have $30,000 in student loans at 7.00% fixed APR with a 10-year repayment term, your monthly payment would be $348. However, if you refinance and qualify for a 10-year loan at a 4.75% fixed APR, your monthly payment would drop to $315, saving you over $4,000 in interest charges.
Refinancing to a longer term can lower your monthly payment but may increase the total interest you pay over time. On the other hand, refinancing to a shorter term may increase your monthly payment but reduce the total interest cost. It is important to review the loan documentation for the total cost of the refinanced loan.
In conclusion, while student loan refinancing can provide much-needed financial relief, it is important to carefully consider the benefits and drawbacks before making a decision. Those struggling with their student loan payments have other options besides refinancing, such as federal loan deferment, forbearance, or income-driven repayment plans.
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Frequently asked questions
It is generally not possible to pay off student loans with a credit card directly. However, you may be able to use a third-party service or other fee-based options.
Using a credit card to pay off your student loans can help you earn rewards, take advantage of a 0% APR offer, or make your student loan payments on time.
The fees associated with paying off student loans with a credit card may outweigh the benefits. Additionally, you will lose any consumer-friendly student loan repayment options you previously had, such as forbearance and forgiveness.
There are a few alternatives to using a credit card to pay off your student loans. You can refinance your student loans to get a lower interest rate and monthly payment, or you can sign up for an income-driven repayment plan. If you are struggling to keep up with payments, you can evaluate your budget and look for opportunities to cut back on discretionary spending.
