When looking at your student loan debt, you might be tempted to find ways to pay it off quicker — and maybe even earn credit card rewards on it. After all, your student loan debt is just sitting there, providing no tangible benefit to you.
Before you decide to move forward, though, it’s important to understand whether you can pay student loans with a credit card and what the implications are if you move forward with the plan.
Is it a good idea to pay your student loans with a credit card?
In general, there are two strategies borrowers may attempt when paying student loans with a credit card:
- Pay your monthly bill with a credit card: You might try to pay your recurring student loan bill with a credit card — particularly if you could earn valuable credit card points by making your regular student loan payments.
However, it’s important to note that many lenders won’t allow you to do this directly, according to Mark Kantrowitz, an education policy expert and the publisher of SavingForCollege.com — though there may be workarounds available for those who are set on this method.
- Transfer your student loan balance to a credit card: Another option is to perform a balance transfer with your student loan debt. For example, a borrower may want to transfer their debt to a credit card with an introductory 0% APR in an attempt to save money on interest.
Again, Kantrowitz points out, many creditors won’t allow this. However, you could likely use a balance transfer check to complete the transaction.
But even if you can get rewards points or transfer your student loan balance to a no-interest credit card, you could actually lose out in the long run.
For those interested in the first strategy, there are typically extra costs associated with paying your student loan bill with a credit card — potentially cancelling out the rewards points you could earn with your payment. Plus, if you don’t pay off your credit card bill in full each month, you’ll be stuck with costly interest payments.
Those who pursue the second strategy may fare even worse; many people can’t pay off an amount as large as a student loan debt during the promotional period for a 0% APR. If you don’t pay off the debt in full before the 0% interest expires, you could be stuck paying the high rates that are typical with credit cards.
“Interest rates on credit cards are usually much higher than on private student loans,” Kantrowitz says. “Ultimately, this can cost the borrower more.”
Additionally, with your student loans entirely transferred to a credit card, you lose the protections that come with federal loans, including income-driven repayment and the tax deduction that comes on all student loan interest. For many borrowers, the second strategy is a particularly risky option that may not offer much benefit.
What are some of the costs of paying student loans with a credit card?
If you decide to set up credit card payments for your monthly student loan bill, you might have additional costs to contend with. First of all, Kantrowitz points out that you can’t pay your federal loans with a credit card. Unless you use a workaround, it’s not a possibility for federal student debt.
On the other hand, if a private lender allows it, you could see steep fees associated with a credit card payment. Kantrowitz points out that merchant fees on such transactions can be high — and lenders are likely to pass them on to you.
If you use a credit card check to make your payment and avoid the transaction fees, there might still be additional costs. Some creditors might charge a fee for using the check, or you might be subject to a higher interest rate.
“A credit card check is often treated like a cash advance,” says Kantrowitz. “It is much more expensive to the cardholder.”
Before you decide to use a credit card to pay your student loan bill, it’s important to review the potential costs. In many cases, the rewards you earn or the interest you save might be less than the extra costs involved.
Pros and cons of using a credit card to pay student loans
Before you make a decision, double-check the pros and cons. Robert Farrington, the founder of financial education website The College Investor, points out that there can be advantages to using a credit card — but you have to be careful.
“Carefully review whether you can handle the payments and whether the benefits outweigh the costs,” Farrington says. “In many cases, using a credit card to pay student loans might not be worth it.”
- Earn more rewards for making your payments
- Get a 0% APR if you have a promotional credit card
- Potentially pay off your debt faster if you can take advantage of the 0% APR
- Not every lender accepts credit card payments
- You could be charged steep fees for using a credit card
- Credit card interest rates are usually much higher and could cost you more if you can’t pay off the balance before a 0% APR ends
- Lose federal student loan protections in some cases
- Interest you pay may no longer be tax-deductible
How is your credit score impacted?
Don’t forget to think about your credit score. As you add student loan payments to your credit card, you could run into issues with your credit utilization. Credit utilization accounts for 30 percent of your FICO credit score, so you could see a negative impact even if you make your payments on time.
And, of course, missing credit card payments can also drag down your credit score.
“Be careful about how you make your payments, and be sure to keep paying on your credit card as you use it,” says Farrington. “You don’t want to risk your ability to get a car loan or a mortgage down the road.”
How to pay student loans with a credit card
You won’t be able to pay your federal student loans directly with a credit card, and some private lenders won’t let you use a card, either.
If using a credit card directly isn’t an option, Farrington says there’s a workaround with a third-party provider such as Plastiq.
You sign up for an account with Plastiq and put in your credit card information as well as the payment address for your student lender. Plastiq will charge your credit card and then cut a check to cover your student loan payment. This also works with other bills, such as your mortgage or rent, when a provider won’t let you pay with credit card.
“Plastiq charges your card, you receive [credit card] reward points, and your student loan payment is made on time,” says Farrington. “It can be a way to rack up rewards quickly. Just make sure you pay off your credit card balance each month.”
However, Farrington points out, Plastiq does charge a 2.5% transaction fee. Take that into account when deciding if your credit card rewards are worth it.
Are the fees worth it?
Even if it’s possible to pay student loans with a credit card, you still have to decide if doing so is worth the cost.
According to Farrington, you might face fees of between 3-5% if a lender actually accepts your credit card payment. If you’re paying $500 a month in student loans, that could be between $15 and $25. You’ll pay that — and any interest if you carry a credit card balance — each time you pay your bill.
But maybe you’re getting credit card rewards that are worth more than the $15 or $25 fee. Whether the extra you pay in fees is offset depends on the card, how many points you get per swipe, and how you can redeem those points later.
Farrington says to assume, as a general rule, that your points are worth one cent apiece; this can give you a quick way to estimate the value. If you get one point per dollar on your $500 bill, you’re basically earning $5 for your trouble. If you get double points per dollar, you may get $10 worth of points.
In those examples, you’re paying more to use a credit card than you earn back in rewards, so using a card likely isn’t worth it. However, take a close look at your credit card reward program and do the math for yourself.
Best credit cards to pay your student loans
If it makes sense for you to use a credit card to pay for student loans, be sure to choose a card fit for the task.
Ideally you’ll use a card that offers some type of rewards that can offset the processing fees you’re likely to encounter. It can also make sense to use a card that offers a hefty sign-up bonus — your student loan might be one of your largest monthly expenses, so using that bill to help you earn a valuable sign-up bonus may be worth it to you.
To really maximize your points or cash back, look for a card that offers higher rewards per dollar you spend or a faster way to earn rewards. Two solid options include the:
- Chase Freedom Unlimited card, which has no annual fee and offers 3% cash back on all purchases in the first year up to $20,000. You’ll earn 1.5% cash back after that.
- Capital One Venture Rewards card, which offers a sign-up bonus of 100,000 points after meeting the minimum spending requirement as well as 2X miles on every purchase, every day.
Even if you don’t permanently pay your student loans with a credit card, you could speed up your ability to earn rewards by doing so for a short time before switching to more conventional methods.
In many cases, you may be better off if you don’t pay student loans with a credit card. Instead, consider putting together a spending plan that allows you to use credit cards for other bills and purchases — without the added processing fees or potential for added interest.
“Any rewards you receive from paying student loans with a credit card usually aren’t worth it,” says Kantrowitz. “They are usually much less than the transaction fees and the interest that accrues.”