A debit card doesn’t help you build credit, so students shouldn’t solely rely on one even if it feels like the safe choice.
Your method of payment, whether it’s a debit card, credit card, cash or an electronic transfer, is more important than you think.
We’ll discuss the advantages of a debit card — and the disadvantages of a debit card — and look closer at other types of payments methods for students.
Debit card payments prevent students from racking up debt because they’re spending their own money. Because you can only spend what you already have in your bank account, debit cards teach financial prudence and help you to avoid debt. (Watch out for overdrafts, though.)
They’re also a great option when you need cash. Debit cards can be used at in-network ATMs to withdraw cash without fees, making them more convenient and affordable than most other methods for withdrawing cash. Make sure to look for the best banks for college students listed on our site that offer fee-free ATM withdrawals in your college town.
Finally, debit cards are easy to obtain. You don’t need good credit, or any credit at all, to open a checking account that comes with a debit card — and many banks offer student checking accounts with waived monthly fees. If you’re not yet 18, you’ll almost always need a parent or guardian to be a co-owner of the account.
Debit card payments don’t help you build credit. Boosting your credit can give you better access to student loan refinancing, which could help you save money on your student loans and pay them off faster after you graduate.
Debit cards also offer little fraud protection. If someone gets access to your debit card or account information, you can be held liable for up to $500 — or more if you don’t make a report within 60 days — in fraudulent purchases. Losing $500 could put a student at risk of not being able to afford books or supplies needed for school.
When your debit card is stolen or a merchant charges you in error, that money can leave you overdrawn or without access to cash. Again, with all the costs related to attending college, a student would be at a severe disadvantage.
|Debit cards||● Avoid debt
● Easier access to cash
● Easy to obtain
|● Doesn’t build credit
● Less fraud protection
● Risk of theft
● Generally no rewards
|Credit cards||● Builds credit
● More fraud protection
● Can earns rewards
● Purchase protection
|● Risk of debt
● Harder to receive approval
Debt and credit
The risks of accumulating credit card debt cannot be overstated, especially for students. Credit cards can come with extremely high interest rates, which could leave you chipping away at a costly balance for years. Students, who typically don’t have much of a credit history, are probably paying pretty high interest rates as a result.
As long as you pay off your credit card balance in full every month, you won’t have to pay interest. However, if you can’t use a credit card without going overboard and charging more than you can afford, a debit card would be a wiser choice.
Bumping up against your credit limit or missing credit card payments can also destroy your credit score. When used responsibly, credit cards can be an excellent way to build credit, especially for students who are starting from scratch. Debit card activity doesn’t contribute to your credit history.
Protections and insurance
While debit cards offer little fraud protection, you’re only liable for a maximum of $50 with credit cards. Most major credit cards have zero liability protection, so you don’t have to worry about theft and fraud.
Separately, many credit cards offer additional perks such as purchase protection. This provides you coverage for items that were purchased on your credit card if they’re accidentally damaged or stolen in a certain time frame.
Some premium credit cards offer further benefits such as trip cancellation insurance, lost or delayed baggage insurance and rental car insurance. This makes them a smart payment option for purchases, such as a flight to visit family and friends for the holidays. While many students won’t have the ability to own premium credit cards, explore these benefits if they’re important to you. Both purchase protection and trip-related insurance are rarely found on debit cards.
Credit cards can come with lucrative rewards. Some earn cash back, while others earn points that can be redeemed for flights or hotel stays. Either way, if you choose a credit card that matches your spending habits, it’s possible to earn hundreds of dollars in rewards each year.
For example, you could be a student at a West Coast college but live on the East Coast. If you’re looking to travel home and you’re able to pay off your flight in full after putting it on your credit card, you could get a serious rewards boost.
Very few debit cards come with rewards programs, and those that do aren’t as generous as credit card rewards programs.
|Cash||● Available to everyone (if you have it)
● Accepted almost everywhere
● Avoid merchant fees
|● Risk of theft
● Doesn’t build credit
Debit cards and cash function similarly, but — nowadays — one big advantage of debit cards is convenience. Swiping a card cuts down on trips to the ATM, and theft is a bigger risk when carrying around lots of cash.
Of course, there are some benefits to paying in cash. While debit card acceptance is fairly common, there are still some merchants, particularly small local businesses, that only accept cash. Other merchants, such as gas stations, might offer a discount for paying in cash or apply a surcharge to debit card payments.
Finally, while it’s rare, banks can deny consumers for checking accounts and debit cards. For example, those with negative marks on their banking history might find it difficult to qualify for a debit card, as will consumers younger than 18 without a cosigner. Cash, on the other hand, is accessible to all, as long as you have it.
|Electronic transfers||● Avoid debt
|● Fees can be incurred
● Not as widely accepted
● Often requires app
Electronic transfers with apps such as Venmo and Paypal are increasingly common forms of payment, especially among students, although they’re not as widely accepted as debit cards.
These apps allow you to send money from a linked bank account or credit card to a friend or merchant’s mobile app with the touch or click of a few buttons. This makes them more convenient for on-the-go transfers to family and friends than a debit card, which typically necessitates a trip to an ATM if you want to give money to someone. These apps are also useful for paying in groups, such as splitting a check at dinner or going to the movies.
They’re not ideal for everyday use, though. For one, electronic transfers can incur fees on certain transactions, particularly if you’re linking them to a credit card rather than a checking account. They’re also not as widely accepted by merchants as cash, debit cards and credit cards.
What are financial aid debit cards?
Federal Student Aid recently launched a financial aid debit card pilot program at four universities that will help cover secondary educational expenses. Students at the following colleges will be able to use the debit cards:
- Jackson State University
- Purdue University
- University of California, Riverside
- University of Georgia
The cards will be loaded with leftover federal loan funds after paying tuition and fees to cover expenses such as textbooks and meal plans.
One possible disadvantage of this debit card is a restriction on how the funds can be spent, but the details of how this plan will pan out remain to be seen.
Students should be using debit cards until they’ve gained more experience managing money. While credit cards offer perks and benefits, none of them outweigh the cost of unmanageable credit card debt.
Students shouldn’t be using debit cards (not solely, at least) if they won’t be tempted to overspend and could benefit from credit cards rewards, protections or the opportunity to build credit.
By graduating with a solid credit history, you’ll have better access to affordable home loans and could save money through student loan refinancing.
Melanie Lockert contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.19% – 6.08%5||Undergrad & Graduate|
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
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. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020 and is subject to change.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 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 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% 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 June 15, 2020, 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 6/15/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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.
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 0.2% effective May 10, 2020.