Can You Pay Student Loans With a Credit Card?
Paying back your student loans can be stressful. This article discusses if you can pay a student loan payment with a credit card, and if that is a good idea.
Can you pay student loans with a credit card? There are many reasons why you may be considering this, from a desire to earn credit card rewards to a plan to reduce your interest rate by paying student loans with a credit card charging an introductory 0% APR.
Unfortunately, the answer is a little more complicated than it seems. Here's why.
Can you pay your student loans with a credit card?
The answer to the question, can you pay for student loans with a credit card, may vary depending on the type of loans that you have.
Can you pay federal student loans with a credit card?
The Department of Education does not accept payments via credit card for any federal student loans. However, this doesn't necessarily mean that you can't ever use a card to pay your federal loans. You can do so using a few different methods;
- You could use a third party service. Companies such as Plastiq allow you to pay virtually any service provider using a credit card. This includes federal student loan servicers. However, you will have to pay a fee to use these services, which is charged as a percentage of the transaction. The fee can be quite high, depending on the service. It will usually cost more than any credit card rewards you could earn.
- You could take a credit card cash advance. This allows you to access cash from your credit card, often by using an ATM or requesting a check. The interest rate is usually very high for cash advances, though, and there is often a fee. This option is very expensive and any credit card rewards you earn would be very low in value relative to the cost of a cash advance.
- You could use a balance transfer. Some credit card companies are willing to send you balance transfer checks, rather than requiring you to transfer the balance onto the card directly. You could use one of these checks to make a payment on student loans. While there is a fee for a balance transfer in most cases, the fee is often relatively affordable and you could potentially qualify for a 0% promotional interest rate on a balance transfer card. However, the 0% rate usually lasts for a short time -- around 12 to 15 months -- and interest could be very high after the promotional rate expires.
So, while the answer to the question, can you pay student loans with a credit card, is yes, there are some downsides to each of the methods that you can use to accomplish this goal.
Can you pay private student loans with a credit card?
Some private student loan lenders allow you to pay directly with a credit card. However, they will usually charge a transaction fee if you do so. This could be more expensive than the cost of any rewards you earn.
If your private student loan lender doesn't allow you to pay your loans with a credit card, you have the same three options as mentioned above for federal loans. You could pay using a third party service; by securing a balance transfer; or by taking out a cash advance.
Should you pay your student loans with a credit card?
The big question for borrowers isn't, can you pay off student loans with a credit card, but rather should you do so. There are both pros and cons to making this choice.
Paying off student loans with a credit card could make sense if you can reduce the interest rate by taking a balance transfer -- if you can pay off the balance before your 0% promotional rate expires. Making a single loan payment with a credit card to buy time to pay and avoid a late payment might also make sense if you can't work something else out with your lender (such as putting loans into deferment or forbearance).
But, in most cases, the cost associated with paying student loans with a credit card makes this an unattractive option. You will have to pay up-front fees in most cases. And, remember, once you've paid the loans with the card, you will owe interest if you don't pay it off in full by the time the balance is due. The interest rate on the credit card could be much higher than the rate you are currently paying on the student loan.
Alternatives to paying student loans with a credit card
The good news is, there are alternatives to paying your student loans with a credit card.
If you're using a credit card because you otherwise couldn't afford to pay
If you're worried about making a payment, it may be possible to put loans into deferment or forbearance.
The federal government offers generous options for struggling borrowers to pause payments using these methods, and some private lenders also allow forbearance to temporarily stop making payments. If you have federal loans, you could also switch to a payment plan that caps payments as a percentage of income in order to make them more affordable.
If you're using a credit card to lower your interest rate
If your goal is to reduce your interest rate, refinancing your student loans could be a better option than paying them with a credit card. Refinancing involves taking out a new private loan and using the proceeds to pay back what you owe. Ideally, your new loan will be at a lower rate, thus reducing bowering costs.
Only private lenders offer refinance loans, so this may be a better option for private student loans than federal ones. While you can refinance federal loans, doing so would mean giving up the advantages these loans offer borrowers, such as loan forgiveness options. Of course, you'd be giving up those benefits anyway if you paid your federal loans with a credit card.
Refinancing could save you more in interest than even a 0% balance transfer card over the long-term, unless you could afford to pay back your loan balance in full before the promotional rate on the balance transfer expired.
If you're interested in checking out refinancing rates, Juno can help. We get groups of borrowers together and negotiate with lenders on behalf of the group to help each borrower get the best possible rates.
Christy Rakoczy Bieber
Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher with experience writing textbooks and serving as a subject matter expert.
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