Put Student Loans on Credit Cards for the Rewards? You May Want to Think Twice
You can’t lean on your credit card in a pinch to pay federal student loans directly, but you may be able to use plastic for private loans. That could be handy if you need some payment flexibility or want to earn credit card rewards.
But when you use a credit card to pay student loans, you will face fees that could erase rewards value. You could also put yourself in credit card debt, which is far less forgiving than federal student loan debt.
Make sure you understand your options for paying off student loans with a credit card before you proceed.
What Are Your Credit Card Payment Options for Student Loans?
Most loan servicers require cash payments. Log into your account and go to your payment options to see if a credit card is one. Check with your lender to confirm – and keep in mind that even if it’s an option, you’re likely to pay convenience fees.
If you can’t use a credit card to make student loan payments directly, you have a few options:
- Use a third-party provider. Payment services such as Plastiq can make loan payments on your behalf with a credit card for a fee. Expect to pay 2.9% when using a card on Plastiq to pay off your student loans.
- Pay with a convenience check. Credit card issuers may offer convenience checks you can use to access your line of credit and then pay bills, such as student loans. A convenience check is considered a cash advance on your credit card. When you use a convenience check, you will pay a cash advance fee, typically 3% to 5% of the check amount, and the check starts accruing interest immediately at a cash advance rate. That annual percentage rate is typically higher than your purchase or balance transfer APR.
- Make a transfer. Some credit card issuers allow you to pay loans with balance transfers. Check with the issuer and the lender before you make a transfer, and be prepared to pay a 3% to 5% balance transfer fee.
Any way you slice it, you will face additional costs with these methods. You could pay third-party processing, cash advance or balance transfer fees, plus a higher cash advance APR with no grace period. You’ll also owe interest if you don’t pay off your credit card balance by the end of a 0% introductory APR period.
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Using Credit Cards to Pay Off Student Loans
You may be able to use credit cards to pay student loans, although you’ll usually pay indirectly. You’ll need to do some math, but even with fees, you could save on interest, earn rewards or do both. Here are a few strategies.
Let’s say you’re paying 13% interest on a private student loan. Take out a 0% balance transfer card – good to excellent credit is required – and you’ll come out ahead, even after you pay the 3% to 5% balance transfer fee. The trick is to pay off your balance before the 0% APR expires.
Maybe you’re less concerned with interest savings and just want some payback for student loans. Pay with a rewards credit card to earn points, miles or cash back rewards for your payments. After paying off student loans for years, you could treat yourself to a vacation or shopping spree with credit card rewards. Just make sure the value of the rewards is greater than the fees for using a credit card for student loan payments.
Choose a rewards credit card that offers a 0% introductory APR on purchases, and you could save on interest and earn rewards. For example, you could use a 0% APR rewards credit card to make a student loan payment with a third-party service. You’ll earn rewards on that purchase and then pay it off with no interest during the introductory period.
Best Credit Cards for Student Loans
Not every credit card is practical for making student loan payments. Look for these features when you consider which card to use for student loans:
- High credit limit. Be sure you have enough available credit to make student loan payments without using your entire credit limit. Using no more than 30% of your limit on any card is best for your FICO credit score.
- 0% APR. A 0% introductory APR or a balance transfer offer could help you save on interest when you pay off your student loans with a 0% card.
- Rewards. Look for a card with a large sign-up bonus and high rewards rate, such as 1.5% or 2%, on all purchases.
“Your best choice when using a credit card to pay off your student loans is to use a 0% intro APR card,” says John Schmoll, founder of personal finance website Frugal Rules. “Most options give an introductory period of 12 to 18 months. However, it’s important to pay off the card before the intro period is over.”
Is Paying Student Loans With a Credit Card a Good Idea?
Paying off student loans with a credit card is a stretch, though benefits may materialize if you approach it strategically.
For one, fees are practically unavoidable, and you may not offset the cost with rewards. You could save on loan interest with a 0% credit card, but you must pay off your balance before you owe interest.
“In most cases, I don’t think the math is going to make sense in terms of using a credit card to pay off a student loan,” says Freddie Huynh, vice president of data optimization for Freedom Debt Relief.
Generally, interest on credit card debt is higher than student loan debt, and when you factor in fees, he says, it just doesn’t add up.
If you’re considering moving federal student loan debt to a credit card, be cautious. Federal student loans have far more flexibility than credit cards, with income-driven repayment plans and deferment or forbearance options. You can take advantage of Public Service Loan Forgiveness programs.
Federal student loan payments have also been paused at 0% interest since March 13, 2020. That’s not happening with a credit card.
When you move student loan debt to a credit card, you lose these protections. That means paying off all of your student loan debt with credit cards is probably not a good idea, but you could come out ahead if you strategically pay off in manageable chunks.
Alternatives to Paying Student Loans With a Credit Card
If you’re struggling to keep up with student loan payments, try these options before you turn to a credit card:
- Income-driven repayment. Available to federal student loan borrowers, an income-driven repayment plan can reduce your monthly payment based on your income and family size.
- Consolidation. Another option for federal student loan borrowers, student loan consolidation combines your student loans into a single monthly bill with a fixed interest rate. You may get access to a new payment plan that lowers monthly payments.
- Refinancing. Private student loan refinancing could offer a lower interest rate, lower payment or both. You can refinance private loans into one new loan or combine private and federal loans, but you lose federal loan protections when you do that.
- Deferment or forbearance. Both are ways to put a temporary stop on student loan payments when you can’t afford them. The difference is that no interest accrues on certain types of federal loans in deferment, but interest continues to grow in forbearance. A pause on private student loan payments is up to your lender, but interest typically continues to accrue.
Certainly, consolidating or refinancing student loans could make payments easier to manage, but read the fine print, Huynh says.
“As with anything, the devil is in the details,” he says. “If you’re able to secure an interest rate that is lower than the interest you are currently paying on all the debt you are planning to consolidate, this may be a good path. But if not, it’s just another way to move debt around and may not solve the problem.
