Should you use a credit card to pay off student loans?

6 min read

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One in four Americans, or approximately 44.7 million people, has student loan debt which, nationwide, totals an estimated $1.53 trillion — and rising, according to data from the Federal Reserve.

Making those monthly payments isn’t fun. But could a student credit card help you eliminate your student debt?

Benefits of student credit cards

If you’re a college student with a limited or non-existent credit history, it may be easier to get a student credit card than a regular credit card. Your credit history is an important factor in your credit score, so students and other young adults may not qualify for a top-tier rewards card.

Some student credit cards, including the Discover it® Student Cash Back and Journey® Student Rewards from Capital One®, do offer cash back rewards, providing the benefits of a rewards card without a lengthy credit history or high credit score.

Good students may even qualify for additional perks or benefits based on GPA.

Limitations of student credit cards

Student credit cards may be easier than a regular rewards card for students to obtain, but they also have limitations you won’t see with other cards.

For instance, student credit cards may have less generous welcome offers, shorter zero percent intro APR periods and fewer rewards.

If you can qualify for a non-student credit card it’s worth researching your options, such as cash back or travel cards, based on your spending habits and goals.

Consider a card like the Chase Freedom®. You could earn a sign-up bonus of $150 after spending $500 within the first three months of account opening. Chase Freedom also offers a zero percent APR for 15 months (16.49 to 25.24 percent variable APR thereafter). You’ll earn 5 percent cashback rewards up to $1,500 in purchases in select bonus categories each quarter after activation and 1 percent on all other purchases all year long. No student cards can match this.

How to pay student loans with a credit card?

Credit cards are useful for big purchases, everyday spending and building credit, but can they actually be used to make payments towards your student debt?

Many student loan providers, including Nelnet, MOHELA, Great Lakes and FedLoan Servicing, do not accept credit card payments. Private lenders may accept credit card payments but charge fees, which could offset any rewards you might earn.

If you have federal student loans, you will have to use a third party like to pay with a credit card. This digital service lets you use a Visa, Mastercard, American Express or Discover card at places that don’t normally take plastic. But you’ll pay a fee of up to 2.5 percent for using the service. Once Plastiq receives your payment, they will mail your student loan servicer a check in the amount you specified. But the service isn’t free, Plastiq tacks on 2.5% for every bill you pay.

More ways to pay with a credit card

If your student loan provider doesn’t accept credit cards directly, you might be able to use convenience checks from your credit card issuer, which are treated like a cash advance but operate similarly to a regular bank check.

You can call your credit card issuer and request convenience checks, which they will mail to you. Like any other check, you simply fill in information like the recipient’s name (your loan provider), payment amount, date and your signature, then mail the check to your student loan provider. They cash it, and it shows up as a charge on your credit card statement which you are responsible for paying.

Alternatively, you can take out a cash advance. But this is inadvisable as cash advances often carry hefty fees and higher-than-usual interest rates.

It’s important to think very carefully about paying off student loans with a credit card. The potential risk of carrying a balance at your card’s go-to rate makes this a very hazardous decision, unless you are very sure that you can pay it off.

Benefits of paying student debt with a credit card

If you can snag a zero percent intro APR, paying eligible student debt with a credit card may help you save money on interest. For example, the Discover It® Student Cash Back offers a zero percent intro APR on purchases for six months (14.49 percent – 23.49  percent variable APR thereafter). If you use it to pay your student loan then pay off the card in that time, you’ll save money.

The other benefit is the opportunity to earn rewards. It’s important to do the math to see how much — if anything — you’ll actually earn by using your credit card once you factor in any fees.

Disadvantages of paying student debt with a credit card

Federal Direct student loans for undergraduates currently have fixed interest rates of 4.53 percent. That number rises to 6.08 percent for Direct Unsubsidized loans for Graduate or Professional studies, and 7.08 percent for Direct PLUS Loans, according to the Federal Student Aid office.

The average credit card interest rate, on the other hand, is currently close to 18 percent. If you can’t pay off your credit card during the introductory period, you won’t save money paying your student loan by credit card.

Paying your federal student loans directly also comes with other perks and benefits. You can deduct student loan interest up to $2,500 on your federal income tax returns, reducing your overall tax burden. You may not qualify for this deduction if your modified adjusted gross income (MAGI) exceeds certain limits set by the IRS. Speak with an accountant before giving up this potential deduction by transferring your loan to a credit card, since interest payments on personal credit cards aren’t tax deductible.

Student loans also carry some protection against difficult financial circumstances. If you can’t pay your loan, you can change your repayment plan. An income-based repayment plan offers variable payments based on your income, which is great for new graduates who are job hunting or taking advantage of the gig economy while they look for work in their field of study.

A loan deferment or forbearance can temporarily stop or reduce your monthly payments, although you may continue to accrue interest on the balance.

These benefits, however, only come with federal student loans, not those from private companies.

Risks and benefits to your credit score

Let’s say you’ve done the math, qualified for a sweet intro APR offer and will accrue 5 percent rewards plus a welcome bonus by paying your student loan with a credit card. Before you take action, you may want to consider how the choice could affect your credit score.

It’s typically good to pay off debt, right? Having one less bill to pay each month can be more convenient. It can provide a psychological boost to your financial wellness. And it could save you money in interest over time.

But it may not provide the boost you expect to your credit score. FICO, the major credit score provider, scores open and active accounts more highly than closed accounts, so your credit score might actually take a hit if you pay off that student loan with a credit card.

Your credit utilization ratio on revolving accounts, or how much you owe on your credit cards, will also go up. This number accounts for 30 percent of your credit score, so that could cause your FICO score to decrease significantly.

Opening a new card also reduces your credit score temporarily by reducing the average length of your open accounts, as does the credit inquiry required before you’re approved for the card.

If you’re planning a major purchase such as a house or new vehicle, hold off on opening new credit cards and continue making those student loan payments on time, instead.

Building a plan

If you’re ready to take the risk and earn the rewards of paying your student loan with a credit card, you’ll need a plan.

First, get copies of your Equifax, Experian, and TransUnion credit reports and fix any mistakes you see to improve your odds of credit approval. Then check your credit score to see where you stand and review which cards are offered in your credit range.

If you have a good-to-excellent credit score, take a look at credit cards with zero percent introductory APR offers to reduce your interest payments when you pay your student loans with your new credit card.

For instance, Capital One® Quicksilver® Cash Rewards Credit Card offers zero percent APR for 15 months (15.49 to 25.49 percent variable APR thereafter), plus 1.5 percent unlimited cash back on all purchases, and a welcome offer of $150 after you spend $500 on purchases within three months of opening your account.

HSBC Gold Mastercard® credit card doesn’t offer any rewards, but it has an industry-high 18-month zero percent intro APR offer (12.99 to 20.99 percent variable APR thereafter) and late payment forgiveness once every 12 months.

Once you’ve been approved for your new card, initiate your student loan payment several days before the due date. Payments by convenience check or Plastiq might take longer than a direct payment. Follow up to make sure the payment processed.

Finally, work out a budget to pay off your credit card during the zero percent introductory APR period. You may want to take your cash back rewards and apply them to your payments to pay off your debt faster.

The information about the HSBC Gold Mastercard credit card has been collected independently by The card details have not been reviewed or approved by the card issuer.