Should you pay student loans with a credit card?

Geoff Williams
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Geoff Williams
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If you have student loans, and especially if they feel out of control, it’s a question you probably have pondered: Can I pay student loans with a credit card? And then you’ve likely wondered: Should I pay student loans with a credit card?

The answer to the “can” question is – it depends. The answer to the “should” question is – no. Or at least: Usually, no.

So, here we go, your questions on paying off student loans with a credit card, answered.

Can I pay student loans with a credit card?

If you have federal student loans, the answer is no, you cannot. It isn’t allowed. End of story.

If you have private student loans, you may able to. It depends on the rules and whims of the lender.

“OK, so I can’t pay off student loans with a credit card in many situations, but in some cases, I can. So if I can, should I pay off student loans with a credit card?”

Generally, no.

“Never?”

There’s one unlikely, narrow scenario where it could make sense. If your private lender allows you to pay off a monthly student loan payment with a credit card (still a big IF), and if you know that you can pay your monthly credit card bill in full, and you’ll end up getting some cash back, points or miles by doing it, then you can likely go ahead and make that student loan payment with your credit card and come out ahead. You’ll also want to take into account any fee the lender charges you to use a credit card.

So, even in that case, it may be possible, but it may not be worth it.

Is it bad to pay off student loans with a credit card?

Again, you can’t even do it with a federal student loan, and some private lenders won’t allow you to, say, automate things so that every month your credit card pays off your student loans. But private lenders often will allow you to transfer your entire student debt, or big chunks of it, to a credit card.

“Why in the heck would I do that?”

It might be tempting, if you’ve applied for a credit card with a 0% APR.

“Oh, I see. Instead of paying interest on my student loan, I’ll have no interest. Why wouldn’t I do that?”

If you’re in the home stretch of the loan, maybe it’s an idea that makes sense, if you work out the math, but there are a variety of reasons why it’s a bad idea nearly every time.

  • Credit card interest rates are almost always higher than student loan interest. So, sure, you may have 0% APR for awhile, like 12 or 18 months, but what happens when you don’t?
  • You also will probably pay a balance transfer fee, which is often 3% or as high as 5%. Just from that alone, you’re adding to your student loan debt. If you’re transferring, say, $10,000 in student debt to a credit card, and there is a 3% fee, you’ve just added $300 to your student debt.
  • You could potentially hurt your credit score big-time by transferring your student loans to your credit cards. As you probably know, credit bureaus like to see consumers carrying a balance of no more than 30% of their available credit (this is your credit utilization). Some experts recommend carrying no more than 15% or even 5%. So if you max out your credit cards with student loan debt, even if you feel that there was a good reason to do so, and even though you’ll be seen as having paid off your student loans, the credit bureaus will see you as a borrower with maxed out credit cards, and your credit score could suffer. And then later, if you want a favorable (i.e., low interest) terms for a house, car or a personal loan, you’ve just made it harder to get yourself one.
  • You can’t get a better deal with your student loan provider. Once that student loan money goes to your credit card or credit cards, it’s credit card debt and not student loan debt. True, your student loan lender may not be easy to negotiate with as it is, but if you wanted a forbearance or deferment plan, you won’t be able to work that out with your lender.
  • Furthermore, if something happens that allows for student loan repayment deferment — you go back to school, you are diagnosed with certain medical conditions, a pandemic shuts down the world, etc. — you won’t be elgible for that deferment. Officially, you no longer have “student loan debt”; you have credit card debt. (It’s important to note that private loans aren’t as simple to defer as federal loans anyway, so this may not matter to you).
  • If there’s ever a student loan debt forgiveness plan for private student loans in the future, you can forget about getting it. Yes, that appears unlikely to happen, but if it did, and all your student loan debt is sitting on your credit cards, you’d be out of luck.

What is student loan deferment or forebearance?

Deferment and forebearance are plans that lenders – not just student loan lenders but also with car loans and some other lenders – will offer allowing a borrower to temporarily delay making payments on a loan, or possibly reduce your principal.

The biggest difference between the two is what circumstances qualify for each. Additionally, interest will always continue to accrue when a loan is in forebearance, but some types of loans qualify for deferment during which interest doesn’t accrue. Remember, too, that federal loans will have different rules than private loans will.

Neither of these is the best option for handling student loans as they generally just “kick the can down the road.” You’ll still ultimately owe the debt and, in many cases, you will owe MORE at the end of the forebearance or deferment thanks to additional accumulated interest. These are last-resort options.

Can I use a credit card to pay my student loans via a third-party app?

You could possibly use a third-party provider to make student loan payments with your credit card, but don’t.

There are payment platforms – we’re not even going to mention their names – that allow consumers to pay nearly any bill with a debit or credit card, even to companies and organizations that typically don’t take credit card payments. These platforms always charge a transaction fee, often around 2% to 3%, so as with a balance transfer fee, you’re paying extra money that is basically being added to your student loan debt. Maybe the math will work out so that you come out ahead, but we doubt it.

The much larger issue is that credit card issuers sometimes view these types of transactions as cash advances, rather than purchases. That means you could be on the hook for a cash advance fee (3% is common), plus a higher interest rate and, usually, no grace period, which means interest will start accruing immediately rather than after your statement due date).

To add insult to injury, you won’t earn credit card rewards on cash advances.

Can I use a cash advance to pay my student loans?

Technically, yes, you could pay your student loans using a cash advance from your credit card, but, you would be making a big mistake.

As briefly mentioned above, cash advances from credit cards are nearly never a good idea. Unlike an actual purchase with a credit card, where you have approximately a month to pay for the merchandise or services before interest begins adding up, there is no such grace period with a credit card cash advance. The moment you take the cash, compound interest has been triggered.

You also will pay some sort of ATM fee when you get the cash. True, if you take $30 out in a cash advance, you probably won’t lie awake nights wondering why you went down this path.

But if you have a $300 payment or whatever your monthly student loan payment is, and you take out a cash advance to cover that month’s student loan payment, you’re just adding interest and fees onto your student debt.

Also, since the interest compounds daily, if you don’t pay off the cash advance payment within a month, you just have revolving cash advance credit card debt that continues to add interest. If you have to pay your student loan monthly payment a little late, you’d probably be better off than taking out a cash advance from a credit card.

“If cash advances are so bad, why do credit cards offer them?”

Look, sometimes people are in emergencies, and they truly need cash, even in this mostly digital money society of ours. But in general, cash advances from credit cards are a bad idea.

What are the options if you can’t make a student loan payment?

Call your student loan lender and let them know you’re having trouble making this month’s payment, or during the next several months. They’ve seen it all. As long as you plan to catch up sooner or later, they will work out something with you, probably either a forbearance plan or deferment. They won’t send somebody out to rough you up.

Lighten up. Just a little humor, with emphasis on little.

Bottom-line: If you’re going to try and pay off student loans with a credit card, make it a rare once-in-a-while deal, or maybe a regular thing if your lender allows it, and you’re in the habit of paying off your credit cards every month, and you’re just doing it to get cash back or other rewards.

But if the notion of putting all of your student loan debt on your credit card enters your mind, make sure you show the idea the exit.

author
Geoff Williams
CardRatings Contributor

Geoff is a freelance journalist and has been since the 1990s. He specializes in personal finance and small business issues and has seen his work published with numerous news outlets including The Wall Street Journal, CNNMoney.com, Reuters, The Washington Post and Consumer Reports. He also...Read more

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