Don’t Pay Your Student Loans With a Credit Card — Unless You Fall Into these Uncommon Categories


Since the COVID-19 student loan payment pause was instituted in March 2020, many borrowers haven’t made a student loan payment in more than three years.

But now, the end of the payment pause is in sight.

Currently, student loan payments are set to resume 60 days after the Supreme Court reaches a decision about President Joe Biden’s student loan forgiveness plan, or 60 days after June 30, 2023, whichever comes first. 

If you’re among the 58% of federal student loan borrowers whose financial stability depends on the payment pause, you may feel unprepared for payments to resume. And you might be considering using your credit card to pay your student loans.

While we don’t recommend considering paying down your student loan bill with a credit card to finance your monthly payments, there are a few exceptions where paying your student loans with a credit card can make financial sense. But the process is complicated and the risks are significant. A few missed payments are enough to send you deeper into debt. Here’s what to know about how to use your credit card to pay your student loans — and when you shouldn’t do it. 

Can you pay student loans with a credit card?

The US Treasury prohibits making federal student loan payments directly with a credit card, and most private student loan lenders don’t accept credit card payments, either. Generally, you’ll need to pay your student loans with an ACH transfer by linking your bank account, a check directly from your bank or a money order.

However, there are a couple ways to get around this rule using third-party services, cash advance-like transactions or balance transfers. Depending on your reason for wanting to pay your student loans with a credit card, and how you plan to pay off the balance, some of these methods may work better for you than others.

Reasons to pay student loans with a credit card

Before thinking of “paying” your student loans with a credit card, you should understand the credit card has two separate purposes in this context: as a transaction method and as a financing method.

If you already have the money on hand to cover your student loan payment but want to route the transaction through your credit card — typically to earn rewards — instead of paying directly from your bank account, you’re treating the credit card as purely a transaction method. In this case, it might make sense to pay off your student loans with a credit card. But you should pay off your credit card balance immediately to avoid accumulating more interest.

On the other hand, if you don’t have the money on hand to cover the portion of your loan payment you charge to your credit card, you’re financing your payment. Whether you’re doing this because you can’t afford an upcoming payment or you want to transfer your entire loan balance to your credit card to take advantage of a 0% introductory APR offer, you’re taking on credit card debt to pay off your loan. Although this can help you pay down your debt interest-free for a period of time, it’s a risky move that we’ll dive into in more detail below.

Depending on whether you’re using your credit card as a transaction method or for financing, there are two situations where it can make sense to pay your student loan with a credit card.

To earn credit card rewards

If you have the money on hand to make your loan payment but simply want to route the transaction through your credit card to earn rewards, it’s theoretically possible — but usually doesn’t work out to be profitable. Since student loan providers typically don’t allow direct credit card payments, you’ll have to go through a third-party provider, such as Plastiq, to process the payment. These providers charge fees, with Plastiq charging a transaction fee of 2.9%. You’re unlikely to find a credit card that offers more than 1%-2% cash back on your student loan payment, which puts your net rewards in the negative after you factor in the transaction fee.

But you might be able to justify using a credit card if you’re earning a large welcome bonus. For example, the Chase Sapphire Preferred® Card currently offers a welcome bonus of 80,000 points (worth $800 if redeemed for cash back and potentially much more if redeemed for travel) after spending $4,000 in the first three months. If you have an extra $4,000 on hand, want to earn this bonus and owe $4,000 or more in student loans, you could use your card to meet this spending threshold. After you factor in the 2.9% processing fee from Plastiq, the card’s $95 annual fee, and the $40 worth of points you’ll earn from the card’s regular rewards rate ($4,000 at 1 point per dollar), you’re essentially left with $629 in profit if you redeem your rewards for cash back — as long as you pay off the balance immediately before it accrues interest. Otherwise, the high interest rate you pay on your credit card will quickly wipe out any rewards. 

Even so, proceed with caution. The considerations that should go into your decision are “much bigger than just getting a bunch of airline miles,” says Rod Griffin, senior director of consumer education and advocacy at Experian, one of the three biggest credit reporting companies in the US. Unless you’re absolutely confident that you won’t end up carrying the balance, the chance to earn some extra rewards might not be worth the risk of sinking into credit card debt. 

To take advantage of a 0% introductory APR offer

Another reason you might want to pay your student loans with a credit card is to take advantage of a credit card’s 0% introductory balance transfer offer. A credit card balance transfer offer allows you to move debt to a balance transfer card, and typically has a period of time — usually between 12 and 18 months — during which you won’t accrue interest on your balance. Although you can’t directly pay your student loans with a credit card, some card issuers let you transfer your student loan balance onto a balance transfer card.

If you pay off your student loans (or a portion of them) with a balance transfer offer, and then pay off your credit card balance fully during the 0% introductory APR period, you could save on interest costs. It’s the same strategy as doing a balance transfer for credit card debt or other types of debt. Keep in mind, most balance transfers come with a fee, so there’s an additional charge you’ll need to account for when formulating a debt repayment strategy.

However, this strategy comes with significant risks. If you don’t pay off your entire balance by the end of the introductory APR period, it will accrue interest at the regular credit card APR, which is much higher than the typical student loan APR. This could leave you with more debt than you started with. And, depending on how you pay your loan with your credit card, you may have to pay fees that will cut into your savings. This strategy works best if your student loan balance is small and you have a solid plan to pay off your full balance within the credit card’s introductory APR period. 

How to pay student loans with a credit card

If your student loan lender or servicer won’t let you use your credit card to make a payment directly, you can use one of these methods to pay your student loans and have the payment charged to your credit card account.

Third-party services

A third-party service like Plastiq is the easiest way to pay your student loans with a credit card — and also the only one that will let you earn rewards on the transaction.

“There are some third-party companies that allow you to make a payment to them, and then they make a payment to your student loan company. But there’s always going to be a transaction fee with that,” says Ryan Law, certified financial planner and board president of the Association for Financial Counseling & Planning Education, a nonprofit organization that trains and certifies financial professionals. Plastiq says it charges a fee of 2.9% for credit card transactions.

Not all credit cards allow student loan payments through Plastiq. Plastiq has a handy chart to help you determine what kind of payments you can make with your credit card through Plastiq, depending on your credit card type.  

Balance transfer

If you can find a balance transfer credit card with a 0% introductory interest rate, you may be able to transfer some or all of your student loan balance to the card. But that transfer has a cost. “There’s typically a balance transfer fee of 3 to 5% [of the amount transferred],” says Lauren Anastasio, a CFP who provides financial advice to clients at online lender SoFi.  

And make sure you can pay off the amount you’re transferring to your card before the introductory interest-free period expires. Otherwise, you’ll end up paying high interest on the balance left on the card. “The expectation should be that you’re going to pay off that card as quickly as possible,” Anastasio says. 

Not all issuers allow balance transfers from student loans the same way they would allow a balance transfer from another credit card. Always check with your issuer to see if a balance transfer is allowed, and whether the introductory APR will apply to the transferred balance. 

Cash advances or convenience check

Using a cash advance or convenience check to pay your student loan is possible, but we don’t recommend it.

A cash advance is when you borrow against your card’s credit line to get cash from an ATM or as a direct deposit into your bank account, which you can then use to pay off your student loan directly. If your issuer offers a cash advance, you may also be able to use a convenience check, which works like a normal check but is drawn against your credit line rather than your bank account balance. You can then use the check to pay your student loan servicer or lender.

Unlike standard purchases, cash advances and convenience checks (which are considered cash advances) start accruing interest immediately after the transaction, typically at a higher APR than your card’s purchase APR. You also may be charged a cash advance fee on the transaction, which varies by issuer but typically ranges from 3% to 5% of the cash advance amount. 

Generally, cash advances don’t qualify for a credit card’s 0% introductory APR offer and don’t earn rewards. Because of these reasons, as well as the high APR, using a cash advance or convenience check to pay your student loan doesn’t provide any financial benefit like the previous two methods do.

Risks of paying student loans with a credit card

While using a credit card to pay your student loans can make financial sense in certain situations, they also come with significant risks, including:

  • Losing federal student loan benefits: If you have federal student loans, you’ll lose any federal benefits associated with them if you transfer your loan balance to a credit card. These include current benefits like the payment pause, loan forbearance and income-driven repayment plans, as well as possible future benefits such as loan forgiveness. We don’t recommend moving federal student loan balances onto a credit card — unless you can repay the balance in full right away. Refinancing your federal student loans into a private student loan also strips you of federal student loan benefits.
  • High variable APRs: If you can’t pay off your full balance by the time your bill is due or by the time your introductory APR period ends, the remaining balance will accrue interest at the credit card’s standard APR. The average credit card APR was 20.09% as of February 2023, according to the Federal Reserve. And most credit cards’ APRs are variable, meaning your rate can change if market interest rates do and your debt could get even more expensive in the future. 
  • Damage your credit score by raising your credit utilization ratio: Your credit utilization ratio is the ratio of your current balances to your total available credit. If you pay your student loans with your credit card and then carry the balance, you’ll raise your credit utilization ratio, which could damage your credit score. Any balance you carry will also count against your credit limit, reducing your ability to charge additional purchases to your card.

How to get help with your student loan payments

While payments on federal student loans are currently paused right now, they’re set to resume 60 days after the Department of Education is allowed to implement its debt relief program or the litigation around the program is resolved. If neither of these things have happened by June 30, 2023, payments are currently scheduled to resume 60 days after June 30. 

If you think you’ll have trouble affording your monthly loan payments, here are some options to look into now:

  • Income-driven repayment plans: These plans (which include the Revised Pay As You Earn Repayment Plan, Pay As You Earn Repayment Plan, Income-Based Repayment Plan and Income-Contingent Repayment Plan) use your monthly income and family size to determine your monthly loan payment. Your loan payment will generally be a set percentage of your discretionary income — typically 10% — and your payment could be as low as $0 if your income is low enough.
  • Loan forbearance: Loan forbearance lets you postpone payments on your loan under qualifying circumstances, such as financial difficulties or changes in employment. During forbearance, interest will continue to accrue and unpaid interest will be added to your principal balance, increasing the amount you owe. If you’re experiencing financial difficulty, reach out to your loan provider to see if forbearance is an option.
  • Loan deferment: Like forbearance, loan deferment lets you temporarily postpone your loan payment for certain reasons. Unlike forbearance, interest won’t accrue during the deferment period on certain types of loans. 

If you have private student loans — which were not included in the payment pause — your options are more limited. Unlike federal student loans, there aren’t established programs in place to help you with your loans if you’re struggling financially.

Instead, you’ll have to contact your private student loan lender to get help. Many lenders offer options to reduce or postpone your monthly payment if you’re struggling financially. However, it’s vital to contact your lender as soon as you think you may have trouble making your payments; skipping payments without notice or letting your loan go into default can have severe consequences on your credit score and financial life. 

Bottom line

For most student loan borrowers, paying your student loan with a credit card won’t make sense. It can be expensive, create more debt and ruin your credit score. But if you’re doing it for a specific purpose, such as earning rewards or taking advantage of a 0% introductory APR offer and have a plan to pay off the balance, you could consider using a credit card.

 

But if you’re thinking about using a credit card to tide you over because you can’t make your monthly payment, there are better options. Studentaid.gov has a wealth of resources you can explore if you’re looking to find the best repayment strategy, or you’re struggling with your student loan payments.

 

Whatever you do, be careful: “Credit card debt mires more people in financial difficulty than student loans,” Experian’s Griffin says.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

This article includes some material that was previously published on NextAdvisor, a CNET Money sister site that was also owned by Red Ventures and which has merged with CNET Money. It has been edited and updated by CNET Money editors.

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