How to Refinance Student Loans With a 0% APR Credit Card Balance Transfer

 May 28, 2021
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When you’re paying off student loans, keeping up with interest can be the hardest part. But that said, there is a way to cut out interest completely by transferring some or all of your student loan debt to a 0% APR credit card, although it could be a risky move for most.

While a balance transfer of student loans isn’t for most people, it might help some borrowers who are absolutely committed to paying off a big chunk of their debt very quickly. There are a few ways you can transfer your loans to a credit card, each of which has its own pros and cons.

To get an idea of your options, let’s take a quick look at each of the following topics:

Making a student loan balance transfer to a zero-interest credit card

Simply put, a balance transfer for a student loan uses funds provided by your credit card issuer to pay off your student debt during a 0% APR promotional period. Note that a student loan balance transfer isn’t the same as refinancing with a private lender for lower rates.

Since the actual process can be a bit complicated, we’ve put together the steps involved in a student loan balance transfer:

1. Get the right zero-interest credit card
2. Gather all of the necessary information
3. Request a student loan balance transfer
4. Repay your credit card balance before the 0% APR ends

1. Get the right zero-interest credit card

Before you can start the process, you need a credit card with zero interest. Although credit card APRs tend to be high, some issuers allow for a 0% introductory APR that typically lasts for 12 to 18 months — note, though, that you’ll need a good or excellent credit score to qualify for these sorts of offers.

Even if you already have a card with a promotional period, it probably makes sense to open a new one to give yourself the maximum amount of time to pay off your student loans. Plus, increasing the amount of credit available to you may protect your credit score, as it should prevent your credit utilization from creeping too high.

That said, this approach is only beneficial if you’re confident you can pay off your balance before the 0% APR promotional period ends. If you still owe money on your card at the end of this time, you could get hit with a ton of interest and end up spending more than you’d save.

You also need to ensure that you open a card that allows balance transfers for student loans. Although it’s not exhaustive, this list shows some credit card issuers that do permit student loan balance transfers:

  • Bank of America
  • Capital One
  • Chase
  • Citi
  • Discover
  • Wells Fargo

Spend some time shopping around and comparing credit cards to find one that offers both student loan balance transfers and 0% APRs for an introductory period. You should also look for cards that either don’t have or will waive balance transfer fees. Once you find one you like, you can apply for the credit card. Upon approval, you’re ready for the next step.

2. Gather all of the necessary information

Before requesting a balance transfer, make sure to gather all of the important information.

1. Figure out the balance transfer amount you want to borrow to repay your student debt. Be ready with the balance transfer amount to request.

2. Have your student loan records on hand. This includes your student loan servicer and account number, which the credit card company might need to process the balance transfer and pay off your old loan.

3. Reach out to your credit card issuer to verify its process for giving balance transfers for student loans. The issuer can outline how to go about requesting a balance transfer and using it to pay off a student loan.

Some credit card companies send a balance transfer check to student loan servicers, while some deposit funds directly. Some companies send money to your bank account, and you then pay off your student loan from there. Find out what approach your credit card company takes, and make sure your student loan servicer will accept the payment, in whatever form it arrives.

3. Request a student loan balance transfer

Once you understand the ins and outs of the balance transfer process, your next step will be to use your new 0% APR credit card to pay off your student loan.

Note that your credit limit might put a cap on how much you can borrow to use for a student loan balance transfer. To maximize savings, be strategic and target the student loan with the highest interest rate, via the debt avalanche method.

After you request the balance transfer, the transaction will process and post. Make sure you get a receipt of payment from the student loan balance transfer to prove your student loan servicer got the funds. Also, be certain you aren’t getting involved in a cash advance by mistake. (See box below)

Be careful not to mix up a cash advance with a balance transfer
A cash advance usually deposits money in your bank account, whereas a balance transfer typically involves transferring debt between accounts. But the two offers can sometimes be worded similarly, so they could be easy to confuse. In most cases, you’ll be better off with a balance transfer, since a cash advance usually comes with higher fees and costs.

4. Repay your credit card balance before the 0% APR promotion ends

Once the funds from your balance transfer have paid off your student debt, it’s time to repay your new credit card balance — and fast.

Being certain that you can pay off your loan while the 0% APR is in effect is the most important part. You don’t want to end up paying your student loans at credit-card-high interest rates.

If you still have a balance after the 0% APR promotion expires, you’ll almost certainly face a higher rate than you originally had on your student loans. Credit card rates are typically around 16% APR or higher, so any savings you might have anticipated by having an interest-free card could quickly vanish amid new, higher interest charges.

Diligently pay extra on your credit card each month. Make sure you set this money aside, and don’t add new purchases to the balance, either.

Benefits and drawbacks of a student loan balance transfer
Pros Cons
You can save a little on student loan interest You could spend a hefty amount on a balance transfer fee
You might get more motivated to pay off debt You might find that transferring a high balance is risky
You could lose federal student loan protections

Pros of a student loan balance transfer

Now you know how to go about getting a credit card balance transfer for a student loan — but is this a smart move for you? As noted above, a balance transfer is often a bad idea, but there are some potential benefits. Here are some upsides (though be sure to also check out the possible drawbacks listed farther down in this report).

You can save a little on student loan interest

The most obvious benefit of a student loan balance transfer to a 0% APR credit card is the savings on interest. How much you might save will depend on the balance you want to transfer and your student loan interest rate.

Maybe you have a $10,000 student loan at 6.00% APR that’s just entering repayment. Transferring the balance to a credit card with a 0% promotion and paying it off in a year would save you $3,322 in interest, over a 10-year standard repayment plan.

But what would you save if you paid off the loan in a year without the balance transfer? You’d still pay some interest — but not much. Paying enough each month to pay off the $10,000 balance in a year, you’d only pay $301 in interest (saving $3,021 over a 10-year standard repayment plan).

When deciding whether you should do a student loan balance transfer to a credit card with a 0% APR or prepay your student loan, note that the savings are there — they just might not be as big as you’re expecting.

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You might get more motivated to pay off debt

Another potential benefit of using a student loan balance transfer is that doing so can keep you motivated to quickly pay off a large chunk of student debt. The period that you have a 0% APR on the credit card is the only time you can repay the debt without incurring more interest fees.

With the expiration of your 0% APR looming, you have a deadline to work towards. This can keep you accountable and disciplined as you work toward repaying debt. Getting out of debt often comes down to changing behaviors, so this benefit can be powerful.

Cons of a balance transfer for student loans

Using a no-interest credit card to pay off student loans can cut down on interest, but the process might be too complicated for some borrowers, and it carries the risk of relatively high interest rates if you don’t repay the entire loan in time. Here are some potential downsides to keep in mind.

You could spend a hefty amount on a balance transfer fee

Many credit cards charge a fee for a balance transfer of student loans. This fee often amounts to about 3% to 5% of the balance transfer amount.

Take the $10,000 student loan balance mentioned above. If your credit card charged a 3% balance transfer fee, you’d pay $300. If it charged a 5% fee, you’d pay $500. That’ll wipe out a big chunk of your savings.

Fortunately, some credit cards don’t charge a balance transfer fee. But if you can’t find a credit card that doesn’t have a balance transfer fee, try calling your credit card issuer to ask if they can waive or lessen the fee. And make sure you don’t confuse a balance transfer with a cash advance, as cash advance fees tend to be even higher.

You might find that transferring a high balance is risky

Transferring a high balance means you’re stuck sending huge payments each month if you want to beat the clock on your 0% introductory APR. This can quickly eat into your cash flow and might be more painful than you expect. Plus, you’d need to qualify for a high enough credit limit to even use this strategy.

And even if you have, say, a $15,000 credit limit on your new card, you probably shouldn’t use it all up with a balance transfer. Borrowing too much against this limit could increase your credit utilization ratio too much, which might adversely affect your credit score.

If you want to pay off student loans with this strategy, make sure the balance transfer amount is 30% or less than your total credit limit. For instance, that would be a maximum of $4,500 of the $15,000 limit. That way, you can make the right move with your student loans while protecting your credit score.

You could lose federal student loan protections

If you transfer the full balance of a federal student loan onto your credit card, you’re turning that federal loan into private credit card debt. As a result, you’ll lose access to federal repayment plans and forgiveness programs.

If you’re counting on income-driven repayment, Public Service Loan Forgiveness or another federal program, transferring your student loan balance probably isn’t a good idea. The same wisdom applies to a private student loan.

Some private lenders let you defer student loans when you go back to school, or skip a payment if you’ve run into financial hardship. But you won’t have access to these student loan benefits if you turn your education debt into credit card debt.

Other ways to pay off student loans with a 0% APR credit card

Requesting a balance transfer of your student loans isn’t the only way to save on interest with a 0% APR credit card. Here are two alternatives to consider:

Pay your student loans with your credit card

If your lender allows you to make student loan payments with a credit card, it might be more straightforward to submit an extra large payment with your no-interest credit card. Figure out how much you can pay back before the promotional period expires, and be diligent about making payments from month to month.

Not every student loan servicer allows you to make payments with a credit card, however, and some charge fees to do so. If the credit card payment fee is greater than the amount you’ll save on your no-interest card, this approach may not be worth the effort.

Use the ‘big purchase method’

If you’ve set aside a bunch of money into savings, you might prefer the “big purchase method” to the balance transfer approach. Let’s say you’ve saved up a few thousand dollars to buy furniture for your home. Instead of using cash, put that big purchase on your credit card. Then, use your savings to make a lump sum payment on your student loans. This approach can not only help you make a dent in your principal, but you might even earn rewards points back on your credit card.

Of course, you’ll need to ensure you’re making minimum payments on your balance each month, as well as paying off your big purchase before the 0% APR promotional period ends. Otherwise, you’ll get slapped with a high interest rate that could make you regret using this method in the first place. Whatever approach you take, make sure there are no hidden fees or other penalties that could leave you spending more than you save.

Refinancing your student loans as an alternative

With a student loan balance transfer, the 0% interest rate is a big draw. But it can also come with hassles, like shopping for exactly the right credit card or coordinating with your student loan servicer. Plus, you’ll have to force yourself to make big payments each month to stay ahead of the expiration date on the 0% APR.

There might be a better way to save on student loan interest: Refinancing your student loan with a private lender instead of employing a credit card.

The best student loan refinancing lenders offer rates as low as 1.74% , and you’re unlikely to face costs like a 3%-to-5% balance transfer fee or a 16% interest rate hike after an introductory rate expires. You can also choose a longer repayment period to keep monthly payments affordable.

That said, refinancing federal student loans also means you lose access to federal programs and protections, so it’s not the right move for someone counting on federal perks. But if you don’t need those programs — or choose to only refinance private loans — this strategy could save you money on interest.

Before refinancing, use our student loan refinancing calculator to see how different interest rates and loan terms would affect your interest costs and monthly payments.

Student Loan Refinancing Calculator






Why balance transfers for student loans aren’t usually worth it

So, what’s the bottom line when it comes to a balance transfer of student loans? Simply put, it is possible to transfer a balance from a student loan to a 0% APR credit card to save on interest (or to use an interest-free credit card to get ahead on your student loans through an alternative method).

However, there are some downsides to watch out for. You’ll need to make sure both your credit card company and student loan servicer allow this transaction. You should also spend some time calculating the potential savings of interest-free debt for the introductory period, and compare whether costs like balance transfer fees might offset savings.

Overall, if you take the time to find the right low-cost credit card and pay your balance in full before your 0% APR expires, you could save on student loan interest, but you’ll need to be certain first that the numbers make sense for your situation.

Rebecca Safier and Andrew Pentis contributed to this report.