If you have student loans, you may be tempted to consider paying them with a credit card. After all, couldn’t you earn rewards or take advantage of 0% introductory annual percentage rate offers? However, paying by credit card sets you up to take some big risks — you’ll be subject to fees and higher interest rates while giving up certain protections.
Can You Transfer Student Loans to a Credit Card?
Before you consider whether it’s a good idea to pay student loans with a credit card, find out whether it’s possible at all.
For one, federal student loan servicers won’t let you pay with a credit card directly — you have to use a payment service like Plastiq, which acts as an intermediary for a fee. And if private student loan companies let you pay student loans with a credit card, they may charge a transaction fee as well.
Michael Lux, founder of The Student Loan Sherpa, a student loan education, strategy and advocacy site, says, “It costs the lenders money to accept payment via credit card, so they don’t like to do it.” But lenders may make exceptions if you’ve fallen behind and can’t otherwise make the payment.
[Read: Best Private Student Loans.]
Some credit card issuers offer student loan balance transfers or offer convenience checks for cash advances that can be used to pay student loans. However, convenience checks are not balance transfers and are typically charged interest at a cash advance APR, which is usually higher than the standard APR. Don’t count on earning credit card rewards with balance transfers or convenience checks, either.
Is It a Good Idea to Pay Student Loans With a Credit Card?
For most student loan borrowers, it doesn’t make sense to pay student loans with a credit card. When you pay student loans with a credit card, you’ll give up student loan protections and potentially move your debt to a credit product with a higher interest rate than your student loans. Plus, you will likely incur fees to do so.
If you’re using a service to pay with a credit card because your student loan company doesn’t accept cards directly, there’s a transaction fee. Credit card convenience checks also come with a fee and interest. Even balance transfers generally have a fee.
Student loans typically offer consolidation, deferment, forbearance or loan forgiveness options, particularly if you have federal student loans. Those protections no longer apply to student loan balances moved to a credit card. “If you have a federal student loan, you’ll lose options for death discharge, disability discharge and the right to cure default,” says student loan attorney Adam Minsky.
Student loan interest rates tend to be much lower than credit card rates. For example, federal direct student loans for undergraduate borrowers disbursed after July 1, 2020, typically have a 2.75% interest rate (which is 0% until Dec. 31, 2020, due to COVID-19 relief measures).
Compare that with an average credit card APR of 15% to 23%, and it’s clear you can save on interest by not moving student loan debt to credit cards.
When Does It Make Sense to Use a Credit Card to Pay Student Loans?
There are two scenarios where it could be advantageous to pay student loans with a credit card.
Balance transfer cards with 0% introductory APR offers may be a good option to pay student loans with a credit card. Although student loan interest rates are generally lower than rates on credit cards, nothing beats 0% interest. If you transfer some or all of your student loan balance to one of these credit cards, you won’t accrue interest on the balance during the first six to 21 months, depending on the card’s terms.
But this only works if you’re careful and don’t transfer more of your student loans than you can pay off before the introductory APR period ends. If you don’t pay the full balance before the introductory period is over, you’ll pay interest on the remaining balance.
Another consideration is balance transfer fees, which can eat into your interest savings. Some credit cards transfer balances with no fee at all or no fee for an introductory period, but you’re likely to pay a balance transfer fee of 3% to 5%. If your student loan interest rate is higher than that, you could see savings. But if you have a student loan interest rate at or below that of the balance transfer fee rate offered by your credit card, it doesn’t make sense to transfer your balance.
And of course, you’ll need to make sure your credit card issuer accepts student loans for balance transfers, as not all do.
When you pay your student loan with a rewards credit card, you can earn points, miles or cash back — just as you would on other purchases. However, if a fee is required to pay student loans with a credit card, you may pay more in fees than you earn in rewards. For example, if you pay a 2.5% fee to use your card but only earn 2% cash back on the transaction, you won’t come out ahead.
Additionally, some cards, such as the Citi ThankYou Preferred Card, allow you to redeem your rewards for payments on a student loan.
You could use cash back rewards to pay down student loan balances, too. Although it’s unusual to offer student loan payments as a direct redemption option, you can redeem cash back rewards for a check or direct deposit to your bank account. With rewards funds in your bank account, you can make a payment to your student loan issuer.
Additional Factors to Consider When You Pay Student Loans With a Credit Card
Make at least the minimum payment every month. If you miss a payment or are late making your payment, you may trigger a penalty APR, which is often as high as 29.99%.
Don’t max out credit card limits with student loan balance transfers. You can only transfer as much of a balance as you can qualify for. If you have $20,000 in student debt but only qualify for a $10,000 credit limit on a balance transfer card, you will only be able to transfer $10,000 to the card.
The remaining $10,000 will stay on your student loan balance. Be aware that using more than 30% of your credit limit is not recommended, as a high credit utilization rate can lower your credit score.
Get preapproved before applying. You should only apply for credit cards that meet your needs and that you think you’ll be approved for. A preapproval can give you an idea of whether you’ll be approved and the credit limit you can expect.
Knowing your credit limit is especially important for balance transfer cards so you can compare offers to find the best card for your needs. Preapprovals protect your credit rating because they’re a soft inquiry that doesn’t affect your credit, unlike a hard inquiry performed when you submit a full application.
Avoid annual fees. Annual fees can eat into any savings you realize when using a credit card to pay for student loans. Ideally, you should look for a credit card with no annual fee. If you choose a card with an annual fee, make sure you will save at least as much as the annual fee when you pay student loans with a credit card.
[Read: Best Debt Consolidation Loans.]
Choose a credit card with the lowest APR possible. Even if you plan to pay your balance in full before interest applies, it’s a good idea to look for a card with a low APR in case your payments don’t go according to plan.
Should You Pay Student Loans With a Credit Card?
Credit card fees, the loss of student loan protections and the risk of transferring low-interest student loan debt to potentially high-interest credit cards make paying student loans with a credit card a bad idea for most people.
For students in a tough financial situation, Lux recommends finding a solution that will work in the long term. That may include student loan refinancing with another company, signing up for an income-driven repayment plan, or starting a second job to generate extra cash. “Don’t take shortcuts today and leave yourself with bigger problems in the future,” he says.