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Can You Pay Your Student Loans With a Credit Card?
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As a student loan borrower, you’ve probably felt the pinch of those monthly payments and wondered if there’s a better way to deal with your education debt. Maybe you’ve even pondered whether you can pay student loans with a credit card.
Well, can you really pay student debt with a credit card? In fact, the answer depends on factors like who services your loans and what kind of card you have. Read on to learn more about paying student loans with a credit card, plus — more importantly — what to consider before you go down that route.
Can you pay student loans with a credit card?
While making payments toward your student loans using a credit card might seem like a great idea, the truth is that many federal loan servicers and private lenders don’t offer this option.
I remember when I got my first rewards credit card and thought it would be a brilliant idea to use it for my hefty loan payments — I dreamed about racking up airline miles.
But alas, federal loan servicer Nelnet does not allow borrowers to pay student loans with a credit card. I was bummed, to say the least, as I thought I might be able to score a free flight or cash back while paying off my massive student debt.
Private student loan borrowers might be able to pay student loans with a credit card, but they could have to fork over a fee to do so. College Ave Student Loans, for example, allows borrowers to make a one-time payment online using a credit card.
That’s where Plastiq comes in. It claims to be the only company to allow you to use a credit where it’s not typically accepted — in exchange for a 2.5% fee. If you made a student loan payment of $393, for example, you’d have to pay Plastiq a commission of almost $10, eating into (and perhaps erasing) your card’s potential rewards.
Another thing to note: Plastiq only allows you to use Visa, Mastercard and Discover for student loan payments — so American Express customers are out of luck.
Why you might not want to pay student loans with a credit card
Keep in mind that just because you can pay your student loans with a credit card doesn’t mean you should. It’s crucial to consider fees that may be tacked on if you pay with a credit card, whether they’re charged by your lender or a third-party provider like Plastiq.
Consider some of these other reasons not to pay student loans with a credit card:
Federal student loan interest rates are typically between around 5-8%, whereas credit card interest rates often surpass 15.00%.
Even if you wanted to use an introductory 0% APR on a balance transfer credit card offer to save money on interest, that rate would only be available for a limited time. Once the promotion is up, the interest rate could easily be double the rate on your student loan or more.
And the worst part: Because your student loan payment already includes interest charges for the month, carrying a balance on your credit card and paying interest on it means you are paying interest on interest!
Finally, if you pay student loans with a credit card, you won’t be able to enroll in autopay with your lender and score the industry-standard 0.25% rate reduction.
The amount of debt you owe in relation to available credit makes up 30% of your FICO credit score. This number is also known as your credit utilization ratio.
Even if you pay off your credit cards in full each month, your credit could be at risk if your ratio is high at the time they’re reviewed each month.
That’s because using all of your available credit is seen as a red flag to lenders. Typically, experts recommend using less than 30% of your credit limit. So if you have a $10,000 credit limit, it’s best to keep your balances below $3,000.
Another thing to consider is that you once you make student loan payments with your credit card, you might create a routine that isn’t sustainable.
If you’re struggling to keep up with your student loans, you can typically be granted deferment or forbearance. However, using a credit card instead means that if you hit troubled times, you could be in debt on both your credit card and student loans.
One more reason you might not want to turn to credit cards for your school debt is that there are many other options that might be a lot easier on your finances, especially if you have federal loans.
Here are some other loan-management strategies to explore:
- Student loan forgiveness: Investigate your eligibility for federal, state and employer-offered repayment assistance programs that could wipe away part or all of your debt.
- Income-driven repayment: You could decrease your monthly payments on federal loans by switching to an income-driven plan. And if you’re struggling with your private loans, ask your lender if you could adjust your repayment plan or perhaps postpone payments using a form of forbearance.
- Student loan refinancing: You could reduce your monthly dues on federal and private loans by consolidating them together with a bank, credit union or online lender. Just be sure you won’t miss those federal loan protections that will be lost when you refinance.
Should you pay student loans with a credit card?
If you’re still considering paying student loans with a credit card, first make sure you can answer yes to both of these questions:
- Do your credit card’s rewards outweigh the fees of your lender (and third-party payment provider), plus the loss of an autopay rate reduction?
- Can you easily zero out both your loan and card balance each month?
You also have to be willing to pull the plug on using your card as soon as it becomes apparent that you don’t have enough cash in your bank account to completely pay off your monthly card balance. At that point, you’d want to review your other options to postpone or lower your loan loan payments.
Sometimes it’s better to be safe than sorry: Paying via your checking account will keep your student loan repayment on track and stop credit abuse before it occurs.