Refinancing with Earnest
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While repaying my student debt, I felt the pain of paying higher interest rates of over 6%. Most student loan borrowers feel that pain, too. The average student debt of $37,172 at a typical interest rate of 5% costs $155 a month in interest alone.
Unfortunately, I was unaware of options to refinance student loans. One strategy in particular could have been a smart fit: getting a zero-interest credit card and using it to perform a balance transfer to refinance my student loan. I could have used the 12-18 month introductory rate period to pay off my student loans, interest-free.
A credit card balance transfer for a student loan is possible and could be a smart move for you. However, it’s not as simple as transferring balances between credit cards. Follow this guide to perform a student loan balance transfer to a zero-interest credit card — and make sure you’re actually coming out ahead in the process.
How to transfer a student loan 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.
However, the actual process can be a bit complicated. Here’s an overview of the steps involved in a student loan balance transfer.
1. Get the right zero-interest credit card
Overall, credit cards carry higher rates than most consumers pay on student loans. So a student loan balance transfer to a credit card only makes sense if you’re moving the debt to a credit card with a 0% introductory APR and paying off the balance before that intro period is up.
However, not every credit card issuer allows cardholders to perform balance transfers for student loans. According to WalletHub, the following credit card issuers allow student loan balance transfers:
- Bank of America
- Capital One
- U.S. Bank
- Wells Fargo
- SunTrust Bank
Spend some time shopping 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 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. Request a student loan balance transfer
The next step will be to use your new 0% credit card to pay off your student loan. 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.
- Figure out the balance transfer amount you want to borrow and use to repay your student debt. Be ready with the balance transfer amount to request.
- Have student loan information on hand, such as your student loan servicer and account number. The credit card company might need this information to process the balance transfer and pay off your old loan.
- Next, reach out to your credit card issuer and verify their process for giving balance transfers for student loans. They can outline how to go about requesting a balance transfer and using it to pay off a student loan.
- Check with your student loan servicer make sure they will accept a check from your credit card company. Depending on how your credit card issuer handles student loan balance transfers, they might pay out these funds directly to your student loan servicer; you’ll want to be sure they will process the payment from a credit card company.
In many cases, you will use a balance transfer check from your credit card issuer to complete the process. These work like normal checks, but instead of being tied to a bank account, they draw funds from your credit card account.
These funds are paid out to you or your student lender. Many credit card issuers can also complete this process online or by phone.
As you move forward in this process, make sure you’re not mixing up a cash advance with a balance transfer. The two offers can be worded similarly, but a cash advance often has higher fees and costs associated with it.
3. Use funds to repay student loans
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.
Alternatively, the balance transfer funds might be deposited directly into your bank account. Try to immediately use these funds as a payment toward your student debt. Don’t let the money sit in your account, where you’ll only be tempted to spend it.
4. Repay your credit card balance before the 0% APR expires
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.
If you still have a balance after the 0% APR expires, you’ll likely face a higher rate than you had on your student loans. Credit card rates are typically around 15% APR or higher. Any savings you might have anticipated by having an interest-free card could quickly be undermined by new, higher interest charges.
Diligently pay extra on your credit card each month. And make sure you set it aside and don’t add new purchases to the balance, either.
Pros and cons 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? Here are some potential benefits, drawbacks, and other considerations you should weigh before deciding.
Save 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 could save will depend on the balance you want to transfer and how high your student loan rate is.
Maybe you have a $10,000 student loan at 6% APR that’s just entering repayment. Transferring the balance to a 0% credit card 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 the $937 a month it would take to pay off the $10,000 balance in a year, you’d pay $302 in interest (saving $3,021).
When deciding whether you should do a student loan balance transfer to a credit card with 0% APR or prepay your student loan, the savings are there. But they might not be as steep as you’re expecting.
Keep yourself 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% rate looming, you have a deadline to work toward. 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.
Balance transfer fee
You’ll also need to account for a balance transfer fee. Most credit cards will charge this fee, which is usually around 3 percent of the balance transfer amount.
Take the $10,000 student loan balance mentioned above. If your credit card charged a 3 percent balance transfer fee, you’d pay $300. That wipes out a big chunk of your savings.
Look for credit cards that don’t charge a balance transfer fee. For instance, the Barclaycard Ring has no balance transfer or annual fees. And it carries a 0% APR for the first 15 months for balance transfers made in the first 45 days.
If that’s not an option, you can always call your credit card issuer and ask them to waive or lessen the balance transfer fee.
Transferring a high balance can be 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 rate. This can quickly eat into your cash flow and might be more painful than you expect.
Additionally, you’ll 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 percent or less than your total credit limit. For instance, that would be about $5,000 of the $15,000 limit.
Consider student loan refinancing
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. And 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 a credit card.
The best student loan refinancing lenders offer rates as low as 1.95%. And you’re unlikely to face costs like a 3 percent balance transfer fee or a 15 percent interest rate hike after an introductory rate expires. You can also choose a longer repayment period to keep monthly payments affordable.
Use this student loan refinancing calculator to see how different interest rates and loan terms would affect your interest costs and monthly payments.
TL;DR: You can do a balance transfer for student loans, but it’s not always worth it
So, what’s the “too long; didn’t read” answer? Simply put, it is possible to transfer a balance from a student loan to a 0% credit card to save on interest.
However, there are some downsides to watch 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 having 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 come out ahead.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for 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 will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.50% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.49% APR (with Auto Pay) to 7.27% APR (with Auto Pay). 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 10 years or less. For loan terms of 10 years 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 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 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 04/17/2019. 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 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for 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.
5 Important Disclosures for 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. All variable rates are based on a 1-month LIBOR assumption of 2.48% effective April 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.49% – 7.27%1||Undergrad & Graduate|
|2.49% – 6.65%3||Undergrad & Graduate|
|2.49% – 7.41%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.49% – 7.11%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|