Repaying student loans each month isn’t fun, but it’s a necessity for borrowers. As you send in your payments, at some point you might wonder whether it’s possible to pay student loans with a credit card.
While it sounds like a dangerous move for your finances, there are actually plenty of good reasons why you might want to use a credit card to pay your lender. For example, you might be short on cash and putting the payment on your card will keep you current until your next paycheck.
You might want to earn rewards points or cash back for the loan payments you’re making. Finally, some 0% interest rate credit cards have great introductory periods, which can reduce your overall bill if you can pay it off in that time.
Sadly, while it would be nice if you could put your student loan payments on a credit card, most lenders won’t allow this to happen. However, there are several ways you can indeed use your credit card to cover this bill.
When You Can’t Pay Student Loans With a Credit Card
Both federal student loan servicers and private student loan lenders typically offer several ways to pay your student loans:
- Sending in a check
- Making online or automatic withdrawals from your bank account
- Using their app to pay
- Making a payment by phone
However, for each of these options, you’ll have to provide your bank account information so money can be withdrawn from your checking or savings account. You can’t use a credit card because of credit card processing fees, which must be paid by your lender, tend to be fairly high.
Average credit card processing fees are typically around 2 percent to 4 percent of the purchase amount. If a lender accepted credit card payments, the lender would lose 2 percent to 4 percent of each payment, which adds up to a costly expense. But, when money is withdrawn directly from your bank account, ACH transfer fees are extremely low, so student loan lenders keep more of the payment.
Bank transfers are so cost-efficient and convenient for lenders that loan servicers often offer a 0.25% interest rate discount for borrowers who sign up to have payments automatically withdrawn.
Is There Any Way to Pay Student Loans With a Credit Card?
While the basic rule that lenders apply is that you can’t pay student loans with a credit card, that doesn’t mean there’s no possible way to ever pay your bill with your card. There are three possible approaches to using a credit card to repay your student loans.
Using a Credit Card Cash Advance
Most credit cards permit you to obtain cash using a cash advance, either by using a convenience check the creditor provides or using your credit card to withdraw cash from an ATM machine.
Using a cash advance, it’s possible to get money from your credit card and use that cash to pay off student loans. The problem is, cash advances typically come with added fees and higher rates. You could pay fees totaling as much as 5 percent of the withdrawn amount, and the average interest rate on a cash advance card is nearly 24%.
The high costs of a cash advance more than negate any rewards you’d receive from using your credit card to pay student loans. Still, if you’re in danger of defaulting on your monthly student loan payment and are 100 percent confident you’ll be able to pay back the money from the cash advance within a few weeks, this may be an option to consider.
Using a Balance Transfer Offer
You’ve probably heard of a balance transfer, which involves a creditor allowing you to transfer the balance of existing credit card debt onto a new card offering a low introductory promotional rate.
If you must pay your student loan debt with a credit card, a low APR credit card might be one of the best credit cards to use. That’s because the introductory rate is usually around 0% for 12 to 18 months.
Balance transfers don’t just make it possible to move debt from one card to another. Many credit card companies send you balance transfer checks, which are blank checks you can write for any amount up to your credit limit.
You could use these checks to obtain money to repay your student loan debt, but there’s typically a fee to transfer a balance. While not all cards charge a fee, when they do, it’s usually around 3 percent of the transferred amount.
You also need to be aware that the credit card interest rate will jump up sharply when the promotional period is over. Make sure you understand the consequences of not paying off your balance during the introductory period before deciding to transfer your student debt to a balance transfer credit card.
Using a Third-Party Service
While loan servicers won’t typically accept monthly payments from your credit cards, there are third-party services that allow you to pay virtually any bill with your card. One example is Plastiq, which allows you to use a credit card—including American Express, Discover, Mastercard, and Visa—to pay a company that otherwise wouldn’t accept one.
These third-party services can help if you’re in a tough spot and you need to pay your student loan bill, but they come at a cost. For example, Plastiq charges a 2.5% fee, and this can add a lot to a loan payment of several hundred dollars.
Calling Your Lender and Asking
While student loan lenders typically don’t accept payments via credit card, in some circumstances lenders have accepted payments. However, this is typically an option only if you’re in default and the lender is afraid it won’t get paid at all if it doesn’t accept your card payment.
If you absolutely need to pay your loans on a credit card, it doesn’t hurt to call your lender, explain the situation, and ask if they’ll process the payment. If they agree, however, they’ll likely pass the costs of processing fees onto you by charging you an extra fee on top of your payment.
The Dangers of Paying Your Student Loans with a Credit Card
While there are ways to pay your education loans with a credit card, this strategy comes with significant downsides. Among them:
- Credit cards usually carry much higher interest rates than student loans
- Credit cards don’t offer deferment or forbearance to pause payments in case of hardship, and there’s no Public Service Loan Forgiveness for credit card debt like you might get on federal loans
- You’ll be paying double interest – the interest included in your student loan payment and the interest on your credit card
- You’ll have to pay fees to process the credit card transaction
- Raising your credit card balance, even by paying down your student loan balance, it reduces your available credit and could lower your FICO credit score
The downsides of using your credit card to pay your student loans could far outweigh any benefits you might get from this approach.
What to Do Instead of Paying Student Loans with a Credit Card
If you simply wanted to maximize your credit card rewards, there are other ways to do that. For example, you could choose a rewards credit card that gives you extra points toward your common spending areas.
If you’re struggling to make payments, using your credit card isn’t best the way out. Instead, explore other repayment options such as deferment, forbearance, income-based repayment or a similar income-driven repayment plan, rather than compounding debt troubles by incurring high-interest debt on a card. You’ll likely be better off with any of these approaches than with using your credit card to pay down your student loan debt.