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.
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1 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 Feburary 1, 2021.
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 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 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 10/26/2020. 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.
3 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
4 Important Disclosures for SoFi.
5 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.
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 January 4, 2021. Information and rates are subject to change without notice.