If you’re into money-saving hacks or love rewards points, you’ve probably wondered, can you pay student loans with a credit card? The answer really depends. Below, we’ll tell you why, when, and how you might use your credit card to make student loan payments.
Can You Pay Student Loans with a Credit Card?
Federal student loan servicers cannot accept credit card payments. They’re bound by U.S. Department of Treasury regulations that forbid it. Great Lakes, Nelnet, MOHELA, and FedLoanServicing don’t currently accept credit card payments. Instead, you must use a debit card, savings, or checking account. Legally, private student loan companies can accept credit card payments, but most don’t. Check with yours to see what their policy is.
The main workaround that works with any loan company is going through an intermediary.
Intermediaries will write a check to your lender in exchange for your credit card payment plus a transaction fee. Transaction fees vary between intermediaries but most lie in the 2.5% arena. Why go with an intermediary? These companies allow you to use your credit card when you normally wouldn’t be able to. This is beneficial if you don’t have enough cash in your checking account because you’re awaiting payday or if you have an excellent rewards credit card.
If your primary motivation is racking up credit cards rewards points, you may need to think again. Since intermediaries charge a transaction fee, you need the points or cash back percentage to exceed 2.5%. Odds are, your cash-back credit card only brings in 1% to 1.5% cash back.
Can You Pay Off Student Loans with a Credit Card?
Dealing with your loan servicer can be frustrating. That’s why the idea of paying off your entire student loan balance with a credit card and leaving your student loan lender behind you might sound appealing. But, it’s just not that simple.
Credit card companies charge much higher interest rates than the federal government or private student loan lenders. Transferring your whole balance to a credit card will almost always cost you more money. But, paying off a chunk of it can sometimes save you money.
Using an intermediary service, you could move some of your student loan balance to a credit card. Proceed with caution. This strategy only works if the card has a 0% introductory rate, if it can save you money, and if you are 100% sure that you can pay off the balance before an interest rate kicks in.
Here’s an example of how it would work:
Claudia signs up for a credit card with 0% APR for 12 months. She has the intermediary service Plastiq put $2,000 toward her student loan, which has a 6% interest rate. She uses the credit card to pay Plastiq the full $2,000 plus the 2.5% transaction fee of $50. Now, she’s left to make credit card payments of $170.83 per month for twelve months instead of paying $172.13 per month to her loan company.
In the above example, it makes sense for Claudia to use the balance transfer approach because her loan’s interest rate exceeds 4.6%. A 4.6% interest rate equals the same $50 fee she had to pay. Since her loan’s interest rate is 6%, using the balance transfer method saves her money. It only ends up being $15.60 for the year, but it’s better than nothing.
You need to do your own calculation to determine how much money a balance transfer would actually save you. If you have private student loans with high-interest rates and have a steady income, it might be worthwhile.
Should You Use Your Credit Card to Pay Off Your Student Loans?
Unless you’re in dire situation, using your credit card to pay off your student loans is a bad idea. Essentially, you’d just be using one type of debt to pay off another and taking on more interest in the process. It might not seem like a big deal if you keep up with your monthly credit card payments, but one slip-up could cost you a lot. Before turning to the plastic, consider your other options.
What to Do Before Using your Credit Card to Make Student Loan Payments
Switch Your Payment Due Dates
If your biggest struggle is the timing of your student loan payments, get in touch with your lenders. Most lenders will work with you to figure out a monthly payment date that works. Ideally, you want your monthly due date to be only a day or so after you get your paycheck. This way, you know that the money will be in your account when you need it.
Consider Income-Based Repayment Plans
Struggling to afford your monthly payments? A credit card seems like a quick out, but it’s not your only option. The U.S. Government sponsors several student loan repayment plans. Under these plans, your monthly payment could be as little as $0. Here’s a brief snapshot of the main income-driven loan repayment plans:
Revised Pay As You Earn (REPAYE): It caps your monthly payments at 10% of your discretionary income, offers loan forgiveness after 20 years of qualifying payments for undergraduate loans and/or after 25 years for graduate loans. It’s also less restrictive than the PAYE plan.
Pay As You Earn (PAYE): Your monthly payment is capped at 10% of your discretionary income and forgiveness is awarded after 20 years of qualifying payments. Only borrowers who took out their first loan on or after October 1, 2007 and borrowers who were disbursed a loan on or after October 1, 2011 qualify for the program.
Income-Based Repayment (IBR): This plan tends to offer borrowers the lowest monthly payments. Your monthly payment won’t exceed 15% of your adjusted gross income over the poverty line for your family size. With this plan, there’s a chance for three years of interest forgiveness too.
Speak with Your Private Lender
Private loans don’t qualify for federal student loan forgiveness. But, that doesn’t mean all hope is lost. Some private student loan lenders will try to work something out. They might offer a temporary deferment or a consolidation option that could extend your term length and thus lower your monthly payment. In any case, reducing your federal student loan monthly payment amount will make managing your private student loan payments easier.
Rework Your Budget
When’s the last time you gave your budget a hard look? Create a list of monthly expenses and separate each item into categories like food, home, entertainment, car/fuel, student loans, and medical. Do you see any areas where you could cut back spending? Start implementing the new budget. At the very least, doing this can help you better manage private student loan payments. Here are 16 tips to help create a solid budget.
Look into Refinancing
Want to escape your current lender? Refinancing could be right for you. When you refinance your loans, another lender assumes your debt. In exchange, you typically get a lower interest rate, a shorter term length, or a longer term length. If it’s a solid deal, refinancing will save you money.
To refinance, you’ll need sufficient income and a high credit score. Plus, you need to understand what you’re giving up. Refinancing federal student loans means losing out on perks like income-based repayment plans and forgiveness programs. Learn more about student loan refinancing here.
Recap: Can You Pay Student Loans with a Credit Card?
While it is possible to go through an intermediary to make student loan payments with your credit card, it isn’t wise. You could quickly fall behind on the credit card payments and end up owing a lot more money. Before resorting to credit cards, try refinancing, talking to your lenders, or enrolling in an income-based repayment plan.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.