If you are a disciplined credit card user—one that diligently pays off the balance you ring up before the grace period ends every month—then paying your student loans on a credit card seems like an easy way to rack up extra credit card reward points for something you were going to do anyway. It kind of reminds me of my second apartment that allowed me to charge my rent on a credit card with no additional fee—free points!
Charging student loans on a credit card, if your lender allows it, is not so straight forward. This is because student loans are a different type of beast. If your student loan creditor accepts credit card payments, then you need to understand both the pros and cons of doing so in order to make an informed decision.
Can You Pay Private Student Loans with a Credit Card?
Whether or not your private student loan lender allows payment by credit card is up to them. You will want to call and ask, or look in the FAQ section of their website. It should be noted that if they do not, you can request a balance transfer check from your credit card (specifically if you are signing up for a great balance transfer introductory rate) and then use that check to pay for part of your student loans. This is what is known as a credit swap.
Another way to do so if your creditor does not specifically accept credit card payments is through a third party such as chargesmart.com. Check to see if your student loan creditor is listed. Note, however, that depending on the lender, there is either a percentage fee or a flat fee assessed for each transaction (this will be displayed before your payment screen).
Can You Pay Federal Student Loans with a Credit Card?
It turns out that the U.S. Department of Education does accept credit card payment for federal student loans. However, they only accept credit card payment if you are in default. Hopefully you are not in default, which means that you will be unable to use a credit card to pay your federal student loans. See all of the federal Student Loan Repayment Options.
Pros to Paying Your Student Loans with a Credit Card
There are some advantages gained when you pay your student loan monthly payment with your credit card.
- Rack-Up Reward Points/Cash Back: You can rack up reward points or cash back (depending on the rewards system your card is set to) for something you would be doing anyway.
- Extend the Payment Period: If your student loan monthly payment is due and you are short until your next payday, putting the payment on a credit card extends the period of time you have to physically put money out of your checking account by 30 days.
- Potential Interest Saved if in an Introductory Period: If you recently opened up a credit card (or can find one) with a ridiculously low 0% interest rate introductory offer, then paying a portion of your student loan debt with the card can actually save you interest.
- Potentially Include Student Loan Debt in a Bankruptcy (Er…not!): I included this as a “pro” because some of you may think this is an option. Since student loan debt typically cannot be discharged in bankruptcy and credit card debt sometimes can, it appears as though you could do a credit swap by charging your student loan debt (or through a balance transfer with a written check from a credit card company) onto your credit card. One day if you need to declare bankruptcy, then you may think you are able to have part of that old student loan debt discharged in court. I do not recommend doing this, as a judge would likely see right through your intentions and potentially charge you with committing fraud on top of not discharging this debt in bankruptcy court.
Looks pretty good, right? Well…there are definitely some potential cons to paying your student loans with a credit card.
Cons to Paying Your Student Loans with a Credit Card
The disadvantages to paying your student loan monthly payments with a credit card can be pretty substantial.
- Higher Interest Rate Likely: If you miss paying your credit card bill on time, or carry a balance, then you are most likely paying much more interest for your loan than if you would just keep it with the student loan creditor.
- Potentially Losing Student Loan Benefits: Your credit card doesn’t care if you miss payments and go into default. Sure, they care that they are losing their money. But they don’t typically have programs in place where you can just sit on the payment for an extended period of time. Typically their option is to send your account to a credit collector agency. With student loans, creditors typically have programs where you can defer your payments, student loan forgiveness, or other hardship programs in the event that you lose your job. So long as there is open communication with the creditor about the situation, they won’t send you straight to a collection agency.
- Potentially Losing the Student Loan Interest Deductible on Your Taxes: Student loan interest is usually tax deductible, which makes paying it slightly easier to swallow. Paying your monthly payment with a credit card doesn’t change the amount of interest accrued from the student loan creditor itself. However, if you charge lots of your debt at once, say on a 0% introductory rate credit card that you know you will pay off, then you are losing a tax deduction. Then again, if you play by the introductory rate rules, you may not pay interest on that debt anyway so it could be worth it.
- Fees: It turns out that if your private student loan creditor allows credit card payments, they may charge a hefty fee ($14-15 per transaction).
Double Check Before Proceeding
It turns out that even if your private lender allows credit card transactions, they may charge a hefty fee for doing so. Be sure to not only ask if they allow credit card payments, but also to ask if there are any fees involved. If so, that may negate any rewards points or cashback received.
Do you pay your student loans with a credit card?