Lana Oconnell
Paying off student loans with a credit card is rarely advisable, as it can be costly and complicated. While it is generally not possible to pay off federal student loans with a credit card, there are some ways to pay off private student loans with a credit card. However, there are drawbacks to doing so, such as high interest rates and the loss of borrower protections. There are alternative solutions to paying off student loans, such as income-driven repayment plans, student loan forgiveness, and refinancing.
| Characteristics | Values |
|---|---|
| Possibility of paying student loans with a credit card | It is generally not possible to pay student loans directly with a credit card. However, there are some ways around this, such as using third-party payment services or balance transfers. |
| Third-party payment services | Services like Plastiq allow you to pay your student loan bill with a credit card, but they typically charge a transaction fee, which can negate any rewards earned. |
| Balance transfers | Some credit cards allow balance transfers, which could be beneficial if you get an introductory 0% APR offer. However, there is usually a balance transfer fee, and you may lose borrower protections and perks associated with student loans. |
| Cash advances | Cash advances or convenience checks are another option, but they can be risky due to high fees and interest rates, and the lack of a grace period. |
| Interest rates | Credit card interest rates are typically much higher than student loan interest rates, which can lead to higher costs in the long run. |
| Fees | Using a credit card to pay student loans may incur various fees, including transaction fees, balance transfer fees, and late fees, which can outweigh any rewards earned. |
| Protections and perks | Paying student loans with a credit card may cause you to lose borrower protections and perks associated with student loans, such as loan forgiveness and interest tax deductions. |
| Repayment options | There are alternative repayment options for student loans, such as income-driven repayment plans, loan refinancing, and federal student loan relief. |
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What You'll Learn
Third-party payment services
First, there are high transaction fees. Plastiq, for instance, charges a 2.9% base fee plus a $0.99 delivery fee per transaction, which can quickly add up. These fees often range from 2.5% to 5% of the total transaction amount, and they can negate any rewards you might earn by using your credit card.
Second, there are restrictions on which credit cards are eligible for making student loan payments through these services. For example, you typically cannot use American Express or Visa credit cards.
Third, using a credit card for student loan payments can lead to double interest payments if you do not pay off the balance each month. Credit cards often have significantly higher APRs than student loans, and the interest rates on cash advances can be extremely high, sometimes reaching 29.99% or more.
Fourth, using a third-party payment service may cause you to lose borrower protections and benefits associated with federal loans, such as income-driven repayment plans or loan forgiveness.
Finally, there are added risks, as noted by David Green, CEO of Earnest, a private student loan, and student loan refinancing lender. He states, "You might also end up paying interest twice if you miss a credit card payment—once on the student loan and again on the credit card balance, driving higher overall costs."
Therefore, while it is technically possible to use third-party payment services to pay student loans with a credit card, it is generally not recommended due to the high fees, interest rates, loss of borrower protections, and potential added risks.
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Balance transfers
If you have a private student loan, you might be able to transfer your loan balance to a credit card more easily. Private lenders are more likely to allow credit card repayment for student loans, but it is important to check with your lender to be sure. By transferring your loan balance to a credit card, you would lose the private student loan protections, such as the option to skip one payment each year or receive forbearance for hardship.
Some credit card issuers have a maximum balance transfer limit that could be lower than your credit limit. This is specific to each credit card company and could cut into your potential interest savings. Additionally, if you cannot comfortably make payments that would allow you to pay off the balance before the introductory period ends, you may pay more interest than before.
When considering a balance transfer, it is important to note that you will likely pay a balance transfer fee, often 3% or 5% of the transferred amount, in addition to the previous student loan balance. This fee could eat into your savings. Furthermore, balance transfers generally do not earn rewards, so you should not expect to rack up cash back or points by moving your student loan to a credit card.
While transferring student loan debt to a credit card with a 0% introductory APR period can save you money in interest, it is important to be cautious. If you cannot pay off the balance before the promotional period ends, your interest rate will increase, and you will likely pay more interest than before. Therefore, it is recommended to have a plan for how you will pay off the debt before transferring it to a credit card.
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Cash advances
You can obtain a cash advance by withdrawing cash at an ATM using your credit card and its associated PIN. Depending on your card, you may be able to do this at any bank, or you may be restricted to a branch affiliated with the bank that issued the card.
Your credit card company may also provide a cash-advance check, which works like a regular check but draws funds from your credit card instead of your bank account. Convenience checks are often treated as cash advances, attracting additional fees and higher interest rates.
While it is possible to use a cash advance from your credit card to pay off student loans, it is generally discouraged due to the high costs and immediate interest accrual. There may also be negative consequences for your borrower protections and tax benefits.
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Federal loan repayment options
Federal student loans cannot be paid directly with a credit card. However, there are third-party services that allow you to use a credit card to pay your student loan bill, such as Plastiq, which charges a transaction fee of 2.9% of the total amount. Additionally, balance transfer credit cards may allow you to transfer your student loan to a card with a 0% introductory APR, although this usually comes with a balance transfer fee of up to 5% of the transaction amount.
Using a credit card to pay off a student loan is generally not advisable due to the high fees and interest rates associated with credit cards. Credit card interest rates tend to be much higher than student loan interest rates, and you will also lose the borrower protections that come with federal student loans, such as student loan forgiveness and the student loan interest tax deduction.
If you are struggling to pay off your federal student loans, there are several alternative repayment options available:
- Income-driven repayment (IDR) plans: With an IDR plan, your monthly payment is based on your discretionary income, and the loan term is typically extended to 20 or 25 years. At the end of the term, you can get income-driven loan forgiveness for any remaining debt, although you may have to pay taxes on the forgiven amount.
- Graduated repayment: This option lowers your monthly payments initially and then gradually increases the amount every two years for a total loan term of 10 years.
- Extended repayment: This plan starts with low monthly payments and then increases the amount every two years for a total loan term of 25 years.
- Standard repayment: This is the default option, where you make equal monthly payments for 10 years. If you can afford it, this plan will result in lower interest charges over time compared to other federal repayment plans.
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Private loan repayment options
Private student loans offer more flexibility than federal loans when it comes to payment options, but they also tend to have higher interest rates. Private lenders are not required by law to offer flexible and affordable repayment plans, so it's important to carefully review your loan contract and understand your rights and responsibilities.
If you're struggling to make payments on your private student loans, there are a few options to consider:
- Refinancing or consolidating your loan with another private lender may help you secure a lower interest rate and better repayment terms. However, it's important to shop around and ensure you don't lose out on any benefits you currently have.
- Negotiating a settlement with your lender for a reduced amount may be an option if you truly cannot afford your debt.
- Bankruptcy is a last resort if you are unable to repay your loans and may result in being sued by the lender.
- Interest-only repayment plans or deferments and forbearances can provide temporary relief by pausing your principal payments. However, interest will continue to accrue during this time.
- Income-driven repayment (IDR) plans are offered by some private lenders and base your monthly payment on your income and household size.
- Student loan forgiveness is available for those working in certain sectors, such as non-profit or government, or with specific employers.
While it may be tempting to use a credit card to pay off your private student loans, it's generally not recommended due to high fees and interest rates.
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Frequently asked questions
You can pay your student loan with a credit card by using a third-party payment service or a convenience check. However, this is generally not recommended due to the high fees involved, which can cancel out any rewards earned.
The risks of paying your student loan with a credit card include high interest rates, costly late fees, rigid credit limits, and the loss of borrower protections and perks associated with student loans, such as loan forgiveness and interest tax deductions.
Yes, there are several alternatives to consider. For federal student loans, you can explore income-driven repayment plans, student loan forgiveness programs, or refinancing options. For private student loans, you may have the option to consolidate your loans with a private lender that accepts card payments, but this will result in losing federal protections.
