Key takeaways
- Using a credit card to pay off student loans is only possible in specific circumstances — and it’s often not worth the effort.
- To pay your student loans with a credit card, you’ll likely have to either use a third-party payment service or convenience checks — both of which are expensive and can cancel out any rewards you might earn with your card.
- In some situations, you might benefit from using a credit card with an introductory APR offer to pay down your debt, but that’s only if you can pay it all off before the end of your introductory period.
It’s common knowledge that credit cards often reward big purchases. However, can credit cards assist with one of the most frustrating expenses of early adulthood?
Nearly 3 in 5 (59 percent) of U.S. adults have delayed making significant financial decisions due to their student loan debt, according to Bankrate’s 2023 Financial Milestone Survey. These decisions include buying a house, starting a family, paying off other debts, and saving for retirement.
If you’re considering using a credit card to pay off your student loans and earn rewards to offset the costs, you’re not alone. Many borrowers have questioned if it’s even allowed. While paying your student loans with a credit card is feasible, it’s usually not a wise choice.
You’re unlikely to earn significant rewards by using a credit card to pay your loans. Most loan providers do not permit direct payment via credit card, and indirect methods usually incur fees that negate any potential points or cash back you might receive.
Moreover, this approach carries several risks that could exacerbate your debt situation. Take the time to understand the risks associated with paying off student loans with a credit card, such as losing federal protections or incurring a higher interest rate on your debt. If you determine that the benefits outweigh the risks, these steps can help you navigate your repayment plan as safely as possible:
1. Determine if you can make loan payments directly with a credit card
Most loan servicers mandate payments from a bank account, making it challenging to use a credit card. Log into your student loan account, access your payment options, initiate a payment, and check if paying with a credit card is an available choice.
If credit card use is restricted, consider these alternatives
Work with a third-party service
Third-party services enable individuals to pay bills, including loans, with a credit or debit card even when the service provider does not typically accept such payments. By paying your student loans through a reputable third-party site, you can use your credit card to pay the loan provider while earning rewards. This method is most effective with a credit card offering a substantial welcome bonus that you can redeem as a statement credit to offset your student loan payment and service fees.
Drawbacks: While you can earn rewards with your credit card, these services usually impose fees for each payment. Once you’ve earned your welcome bonus, these fees are likely to outweigh any rewards you earn, potentially leading to increased debt if you carry a balance on your card. You should also account for the varying processing times of the payment method accepted by your loan servicer and plan accordingly.
Keep in mind:
Any third-party bill payment service you use for your student loans needs to be well-vetted and reputable. Be cautious of potential student loan scammers, and if you have any doubts about a company’s legitimacy, refrain from using their services.
Use convenience checks
If you wish to avoid third-party sites and take a more direct approach, consider using convenience checks. Similar to personal checks, convenience checks allow you to utilize your credit card’s available balance and can be made out directly to the recipient. These checks can be used wherever regular checks are accepted and may process faster as they do not require an intermediary service.
Drawbacks: Exercise caution when using convenience checks. They automatically accrue the same interest rate as cash advances, which can be 29 percent or higher. Only employ this strategy if you have the funds readily available to repay the charge immediately and are primarily interested in earning rewards. However, even then, the fees associated with convenience checks can offset any rewards you earn.
Convenience checks are not the same as balance transfer checks, which often allow you to take advantage of an introductory APR offer from a credit card issuer. When you use a convenience check, it won’t be eligible for your intro APR offer and will start accruing interest immediately.
2. Use these credit card payoff strategies
Once you know how to make a student loan payment with a credit card, you’ll want to consider your payoff strategy. Are you going to charge a large portion of your loan balance to a credit card? Or do you plan to continue with small, fixed payments each month?
For a large charge, take advantage of a 0% intro APR offer
There are plenty of cards that offer a 0 percent intro APR for new cardholders, meaning you won’t have to worry about interest for a limited time. Most offers last from 12 to 18 months, but some go up to 21 months.
The Wells Fargo Reflect® Card, for example, offers a 0 percent introductory APR on both purchases and balance transfers for 21 months, followed by an 18.24 percent, a 24.74 percent or a 29.99 percent ongoing variable APR. If you don’t have the money in your bank account to immediately pay off a charge, then using a 0 percent intro APR card will likely be your best option.
Drawbacks: While most intro APR cards have interest rates that are around the national average, credit card APRs tend to be higher than student loan APRs. You want to be sure you can pay your student loan — now credit card debt — in full before the 0 percent intro APR period ends, or else you’ll pay a lot more in interest. You’ll also have to make sure that your loan payment will count in your issuer’s eyes as eligible for your intro APR offer.
For small, recurring charges, use a flat-rate card
For those who plan on using a credit card to chip away at their balance over time, a flat-rate cash back card may be your best tool. Most rewards cards would only offer 1 percent cash back on student loan payments, since student loans don’t fall into traditional bonus categories, but flat-rate cards will offer 1.5 to 2 percent.
The Citi Double Cash® Card is a good example. This card offers up to 2 percent cash back on all purchases — 1 percent when you make the purchase and 1 percent when you pay for it. It also comes with a welcome offer that you can redeem as a statement credit and use toward your balance.
Drawbacks: Any rewards you earn with your flat-rate card, even at 2 percent, will likely be eaten away by the fees you pay to a third-party service for helping you pay with a credit card. If you use convenience checks with this method, you might fare a little better, but convenience check fees can also cancel out your rewards — especially if you don’t pay it off right away and have to pay interest. If you’re looking to move your entire loan balance out of your loan account and into a credit card account, it’s better to focus on finding a 0 percent introductory APR offer.
3. Follow these additional tips
Playing the calendar game
Timing is everything, and you can use it to your advantage. For most cards, you can change your payment due date, and many make the default on the 28th of the month. Use this to your advantage by setting your due dates for your loans and card at least two weeks apart. By doing this, you give yourself a safety net. Should an unexpected expense come up, you have time to recalibrate your budget. This can also give you a paycheck between deadlines, giving you more flexibility in your budget.
If you’re someone that tends to confuse dates or be forgetful, this method may not be the best. If the window is too large, it may be better to place your due dates closer together. However, you should leave a few days between them to allow for delays from issues like site crashes, processing time and holiday hours.
Mix and match
Who says you need to stick to one way of paying off your loans? You can mix and match methods as needed as the end goal stays the same. Look at your current spending habits and determine from there the best debt repayment method for you. Maybe that means using a third-party service to move a chunk of your debt to a 0 percent APR credit card, or maybe that means using convenience checks with a new credit card until you earn a hefty welcome bonus.
But while it’s important to find a payment strategy that works for you, you don’t want to open too many credit cards in a short window or complicate your repayment plan. Make sure to look for preapproved cards to avoid a hard inquiry on your credit card and wait at least six months to a year before opening another.
Also, don’t let curiosity or hearsay get the best of you. If you find a strategy that works with your budget and schedule, stick with it. If you want to switch, make sure to do your research.
The bottom line
Paying off your student loan debt with a credit card is a high-risk endeavor that offers very little rewards once you factor in the additional fees and the hassle of managing multiple payment avenues. While there are some potential advantages, such as earning a welcome bonus or utilizing a 0 percent introductory APR card offer, you are likely to encounter drawbacks as well.
If you decide to proceed with paying off your loans with a credit card, devise a plan that is stress-free and suits your needs. However, be sure to explore other alternatives to alleviate your student loan debt before embarking on this process. While numerous private companies provide student loan debt relief services, government resources are also available to assist you in eliminating your debt.