Paying Student Loans with a Credit Card: What You Need to Know

You can pay off your student loans with a credit card, but you’ll probably need to do so through a third-party business. Even so, there is still a chance for incentives, and using plastic to pay your bills has additional advantages.

Let’s examine the potential advantages and drawbacks of reimbursing student loans with a credit card, as well as some advice you might find useful if you do decide to go ahead with such a plan.

Can You Pay Student Loans With a Credit Card?

Federal Student Loans

For any federal student loans, the Department of Education doesn’t really allow credit card reimbursements. This does not imply that you will never be able to reimburse your government loans with a credit card, though. Several techniques can be used to do this:

• You might make use of an outside service. You may use a credit card to pay almost any service provider.

• You might obtain a cash advance on your credit card. You can then use an ATM or ask for a check to withdraw money from your credit card.

• Using a balance transfer might be useful. Instead of asking you to move the balance directly onto the card, some credit card issuers are happy to mail you balance transfer cheques.

Private Student Loans

You may be able to pay your private student loan servicer straight with a credit card. However, if you do so, they will typically charge a transaction fee. This can cost more than the value of any awards you receive.

The same three choices are available to you for private education loans as they are for government loans if your creditor does not permit credit card reimbursements. A balance transfer, a cash advance, or a third-party service are all options for making reimbursements.

Paying Student Loans with a Credit Card: Pros and Cons

Pros

• Gain rewards for your spending – You can accumulate points, miles, or cash back when you use a rewards credit card to reimburse your education loan, just like you would while making other purchases.

• Credit cards could allow you more flexible reimbursement options – When money is tight, using a credit card as payment can offer you some extra time before you have to make a payment.

• Your interest reimbursements may be lowered if you transfer the remaining balance from your education loans to your credit card –There are situations when you can benefit from a cheaper interest rate when you roll over your education loan amount to a credit card. 

Cons

• Money lost to fees – Fees from third parties might increase the sum you owe and negate any savings from deferring payment.

• Accruing a big debt – Overusing credit could lead to credit card debt that is impossible to pay off.

• Possible harm to your credit rating – Building up the debt on recurring accounts you possess (like credit cards) might cause this rate to grow up quickly, which could lead your credit score to plummet.

• Benefits and tax deductions will be lost – If you pay off your education loans via a credit card, you can miss out on benefits that come with paying your government loans directly.

• Consumer rights for federal education loans will be lost – Additionally, federal education loans come with some protection against severe financial situations like forbearance or postponement.

• You forfeit your opportunity to bargain with your education loan creditor – Your loan servicer might be able to offer you forbearance, an interest-only reimbursement plan, or a temporarily lower interest rate if you’re having difficulties paying your education loan reimbursements.

How to Pay Student Loans Using Credit Cards

Here are some additional ways you might be able to pay down your education loans indirectly using a credit card.

1. Make use of third-party providers – You can utilize a third-party business like Plastiq to pay with a credit card if you want to pay your upcoming loan obligation with one.

2. Move your balance to a credit card with a 0% APR – Some issuers of credit cards permit customers to transfer their outstanding education loan balances.

3. Obtain a cash advance – When you use your credit card to withdraw money from an ATM or bank branch, this is known as a cash advance.

Is Paying Student Loans with a Credit Card a Good Idea?

Paying education loans with a credit card doesn’t make sense for the majority of debtors. You will forfeit education loan safeguards if you pay for education loans with a credit card, and your debt may be transferred to a credit product with a higher rate of interest than your education loans. Additionally, you’ll probably pay for it somehow.

Other Options to Help Pay Off Your Student Loans

Federal Student Loans

Before utilizing a credit card to make a payment on federal education loans, debtors should think about these options.

Income-Driven Repayment (IDR) Plans

IDR plans come in four different types:

• Revised Pay As You Earn Repayment (REPAYE)
• Pay As You Earn repayment (PAYE)
• Income-based repayment (IBR)
• Income-contingent repayment (ICR)

Debtors with the following loan types can choose from IDR plans:

• Direct subsidized and unsubsidized loans
• Subsidized and unsubsidized federal Stafford loans
• PLUS loans
• Both direct and Federal Family Education Loans (FFEL) consolidation loans

Student Loan Deferment or Forbearance

Deferment and forbearance alternatives are also available for government loans, allowing you to postpone reimbursements for up to three years at a time. 

Private Student Loans

Private loan debtors have fewer choices than debtors of federal education loans, but there are still tactics they can use.

Student Loan Refinance

If you meet the requirements, refinancing your education loan to a lengthier term can reduce your monthly reimbursements..

Deferment

You might be qualified to postpone private debts for a few months if you experienced a layoff or a medical emergency.

Lower Payments on Other Loans

Contacting your other creditors, like your mortgage servicer, to see what they can do is the best course of action if the company providing your education loans won’t defer your reimbursements. 

Final Thoughts

Because of the fees and interest charges that may quickly build up, repaying education loans with a credit card is not always a smart move.

A better option if you want to use your credit cards right away? Reimbursing education loans with the points or cash back you earn from card transactions. You may do this immediately with some credit cards. Instead of a statement credit, you can more frequently request your rewards in the manner of a cheque or bank account transfer, which you can then use to reimburse your education loans.

Get a clear idea of the cost before utilizing credit for loan reimbursements so that you may organize your budget without jeopardizing your credit score or cash flow.