Advantages and Disadvantages of Debit Cards if You’re a Student

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

debit card student
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

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.

Advantages of debit cards
Disadvantage of debit cards
Debit cards vs. credit cards
Debit cards vs. cash
Debit cards vs. electronic transfers
Which students should — and shouldn’t — use debit cards?

Advantages of debit cards 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.

Disadvantage of debit cards for students

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 vs. credit cards

AdvantagesDisadvantages
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
● Insurance
● Risk of debt
● Harder to receive approval
● Interest

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.

Rewards

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.

Debit cards vs. cash

AdvantagesDisadvantages
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.

Debit cards vs. electronic transfers

AdvantagesDisadvantages
Electronic transfers● Avoid debt
● Convenient
● 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.

Which students should — and shouldn’t — use debit cards?

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!
LenderVariable APREligible Degrees 
1.99% – 5.64%1Undergrad
& Graduate

Visit Earnest

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.28%3Undergrad
& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
& Graduate

Visit Splash

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.61%5Undergrad
& Graduate

Visit CommonBond

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 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 7/31/2020. 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.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

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.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. 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. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.28% APR (with AutoPay). Variable rates from 2.25% APR to 6.28% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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 September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective Sep 1, 2020 and may increase after consummation.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.