As a student loan borrower, you’ve probably felt the pinch of those monthly payments and wondered if there’s a better way to deal with your student loans.
Whether you’re having trouble making payments or simply want to redeem rewards, you may have wondered, “Can you pay student loans with a credit card?”
The answer? It depends. Read on to learn more about if you can pay student loans with a credit card and what to consider before you go down that route.
Can You Pay Student Loans with a Credit Card?
While making payments toward your student loans using a credit card may seem like a great idea, the fact is that many loan servicers don’t offer this option.
I remember when I got my first rewards credit card and I thought it would be a brilliant idea to make my hefty monthly payments on my credit card and rack up miles.
But alas, Nelnet does not allow borrowers to pay student loans with a credit card. I was bummed to say the least, as I thought I might be able to score a free flight or some cash back while paying off my massive student loans.
Loan servicers like Nelnet, MOHELA and FedLoanServicing require borrowers to pay through their checking or savings account.
Great Lakes also mentions in their FAQ section that they don’t accept credit card payments, except for loans in default. However, some borrowers have claimed they were able to make a one-time payment using a credit card by calling Great Lakes and making a payment over the phone.
Private student loan borrowers may be able to pay student loans with a credit card, but might have to pay a fee to do so.
Dangers of Using a Credit Card to Pay Student Loans
Keep in mind that just because you can pay your student loans with a credit card doesn’t mean you should. In fact, there are plenty of reasons not to do it.
First, it’s crucial to consider fees that may be tacked on if you pay with a credit card.
Also note that credit cards have much higher interest rates than student loans. Federal student loan interest rates are typically between around 4.00% to 7.00%, whereas credit card interest rates average around 15.00%.
Even if you wanted to use an introductory 0% APR credit card offer to save money on interest, that rate would only be available for a limited time. Once the promotional rate is up, the interest rate could be double your student loan interest rate.
And the worst part: because your student loan payment already includes interest charges for the month, carrying a balance on your credit card and paying interest on it means you are paying interest on interest!
Using a credit card to make student loan payments can also have other consequences that aren’t so obvious.
For instance, the amount of debt you owe in relation to available credit makes up 30 percent of your FICO credit score. This number is also known as your credit utilization ratio.
Even if you pay off your credit cards in full each month, your credit could be at risk if your ratio is high at the time they’re reviewed each month.
That’s because using all of your available credit is seen as a red flag to lenders. Typically, experts recommend using less than 30 percent of your credit limit. So if you have a $10,000 credit limit, it’s best to keep your balances below $3,000.
Another thing to consider is that you once you make student loan payments with your credit card, you can’t reverse the process.
When you’re struggling to make payments on your student loans, you can typically be granted deferment or forbearance. However, using a credit card to keep up on payments instead means if you hit troubled times, you could be in credit card debt and student loan debt. Not good.
So is it ever a good idea to use a credit card to make student loan payments?
“If you are able to use your credit card to make student loan payments, then it only makes sense to do so in order to earn rewards,” explained Jason Steele, Credit Card Expert at CompareCards.com.
“And even then, it’s possible that some student loan servicers will add additional fees that will outweigh the value of any rewards returned. On the other hand, it’s not a good idea to use a credit card unless you will avoid interest by paying off your balance in full each month,” he advised.
Many student loan borrowers can’t pay student loans with a credit card, but for borrowers who are allowed this option, seriously consider the ramifications on your wallet and credit score before moving forward.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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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 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% 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 March 18, 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 0318/2019. 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 ourstudent 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.
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 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|