Pay Student Loans With Credit Card
Pay student loans with credit card may seem like a bad idea, and that’s why-at least most of the time.
In fact, the US Department of Treasury prohibits student loan providers from allowing credit card payments.
You can pay student loans with credit card or transfer your balance using an online billing service such as Plastiq.
With a balance transfer, payment obligations are transferred from the student loan provider to the credit card issuer.
There are other ways to pay student loans with credit card, and some of these methods allow you to earn credit card debt refinance rewards.
Before doing so, carefully consider the costs associated with your payment method and whether it is worth the benefits you receive.
Way to Pay Student Loans With Credit Card
There are also pros and cons to pay student loans with a credit card. The best part about paying with an online service is that you can get rewards.
If you make a balance transfer instead, you probably won’t earn. But the interest rate on a credit card is usually much higher than the interest rate on an education loan.
Unsustainable debt can increase if the balance cannot be repaid immediately. A 0% credit card may help, but usually, you need more than enough credit to get it and you can only buy until the interest is valid. Consider the followings :
- From 2017, U.S. Treasury Department regulations will prohibit direct credit card payments on student loans.
- You can pay student loans using an online billing service such as Plastiq. These services charge your credit card and send a check or wire transfer to the credit issuer.
- Third-party services charge a fee. For example, Plastiq typically charges 2.85% of the transaction amount but may offer lower rates for promotions.
- If you can pay with the online service, you will be rewarded for the amount you invoiced.
- If the third-party service doesn’t work, you can transfer your balance to your credit card instead. This can result in a temporary 0% interest rate, but you will usually have to pay a balance transfer fee of 3% to 5%.
- If your company does not allow you to transfer your balance directly, you can use a balance transfer check, which is a check that uses a credit line instead of your bank account. It can be obtained from the issuer of the card. Keep in mind that standard balance transfer rates and fees apply.
- 10 of the top 15 credit card issuers allow bank of America, Berkeley Card, Capital One, Citi, Discover, Penfed, USAA, US Bank, Wells Fargo and SunTrust Bank to transfer balances from student loans.
- Only Barclaycards can earn rewards for balance transfers.
- Federal student loan interest rates typically range from 4% to 7%, but average credit card interest rates exceed 15%.
Advantageous To Pay Student Loans With Credit Card
If you are aware of the dangers of using to pay student loans with credit card and are still interested in the options, here are some things to consider.
Keep in mind, however, that while some allow you to earn rewards, others do not. And even if you’re looking for rewards, that doesn’t mean the transaction has a net benefit.
First, be aware that the Treasury explicitly prohibits direct paying student loans with credit card. But if you can win a lot in credit card rewards, such as credit card points or airline miles, there are some ways to pay student loan with credit card which make sense to use a credit card to pay student loans as follows:
Balance transfer cards with introductory APR 0% offers can be a good option for student loan credit card payments, to pay student loans with credit card. Although the interest rate on student loans is generally lower than the interest rate on credit cards, nothing reaches 0%.
If you transfer part or all of your student loan balance to a credit card, no interest will accrue on the balance for the first 6-21 months, depending on the terms of the card. However, this only works if you do not want to send more student loans than you can repay before the end of the APR implementation period.
If you do not pay the full amount before the end of the trial period, you will pay interest on the remaining amount. Another consideration is the balance transfer fee.
This can lead to interest savings. Some credit card transfer balances with or without any fees during the implementation period, but you may pay a balance transfer fee of 3% to 5%.
If your student loan interest rate is higher than that, you can see the savings. However, if the interest rate on your student loan is less than or equal to the interest rate on the balance transfer fee provided by your credit card, there is no point in transferring your balance.
Paying Student Loans With Credit Card For Points
Pay student loans with credit card (rewarded) and earn points, miles, or cashback just like any other purchase. However, if you need a fee to pay student loans with credit card, you can pay more than you can earn with a reward.
For example, if you paid a 2.5% commission to use your card, but only got 2% cash back in your transaction, you won’t get out first.
In addition, some cards, such as Citi ThankYou Preferred Card and Gift of College Gift Cards, allow you to redeem your rewards for pay student loans with credit card.
If you buy a gift card yourself, you can earn benefits from that transaction. The only pitfall is that you may not get enough rewards to cover the cost.
You can buy gift cards worth up to $ 200 from the registry website, but a $ 200 gift card costs $ 5.95, which is 2.975% of the price. You can also use the cashback reward to repay your student loan balance.
Although it is rare to offer student loan payments as a direct redemption option, cashback rewards can be redeemed for checks or direct deposits into a bank account.
If you have compensation funds in your bank account, you can pay your student loan issuer. Not many credit cards consistently offer better rates of return. And even the cards you offer little profit that isn’t worth it.
You can also use an intermediary such as Plastiq. Some third-party companies allow you to pay them and then they pay the student loan company.
Plastiq is a third-party bill payment service that allows you to pay various bills with your credit card, including student loan payments. However, you will have to pay a 2.5% fee to use the service to pay student loans with credit card.
It’s cheaper than buying rewards, but it’s still higher than most rewards credit cards give. It is usually not advisable to decide to pay student loans with credit card because you are experiencing financial difficulties.
Due to the economic uncertainty caused by the epidemic, the payment of the federal student loan will be frozen interest-free for the remainder of 2020.
You can still choose to pay off these loans, and if interest payments are stopped, any money you pay will be used to reduce your principal – which in turn will reduce the amount you have to pay.
|NOTE : It only makes sense to pay for a student loan with
a credit card if you find a free balance transfer
card with a 0% APR and then pay
the full card balance immediately.
Many credit card issuers mail checks that can be used to repay other debts. Even if your card issuer does not allow you to directly request a transfer of your student loan balance, you can still use one of these checks to handle it.
If you can’t move your balance, a handy check will take your place. These are checks withdrawn against credit limits, not bank accounts.
Student loan servicers are required to accept checks like any other payment method. However, a convenient check still means that you have to repay the money, and in most cases, there is a 3% to 4% fee.
However, using convenience checks will not reward you and may incur fees for your transactions. Therefore, the drawbacks are the same as doing a direct balance transfer.
Disadvantageous Of Pay Student Loans With Credit Card
The drawback of pay student loans with credit card is that is no longer possible to pay directly to the student loan servicer with a credit card, but there are a number of ways to work around this limitation. However, before looking at these methods, it’s important to think about why this might be a bad idea.
For most student borrowers, there is no point in pay student loans with credit card. If you pay student loans with a credit card, you give up student loan protection and possibly transfer your debt to a loan product with a higher interest rate than student loans. Plus, you’ll probably have to pay a fee for it.
Student loans are a type of installment payment and have a fixed monthly payment and repayment period. Credit cards, on the other hand, have a minimum monthly payment but no repayment period.
If the student loan company does not accept your card directly and you use the service for credit card payments, we will charge a transaction fee. Credit card convenience checks also come with fees and interest. Even balanced transfers usually charge a fee.
As a result, you may accumulate balances on your credit card and never pay. Some credit cards may offer promotions that make you want to transfer your debt, but if you don’t have a deadline, you can easily be happy and leave your balance on the card.
According to the Federal Reserve, the average interest rate on credit cards is 17.14%, and many cards charge more than 20%. In contrast, federal student loan rates for the 2019-2020 academic year range from 4.53% to 7.08%, and even private student loans may not be as high as credit card rates.
It costs even more if you use your credit card to pay your student loan balance and keep that balance on your card.
If you have a federal student loan, using your credit card to repay part or all of your balance gives you access to some protection.
This includes income-driven repayment plans, student loan exemption programs, and forgiveness and deferral options.
Student loans usually offer the option of integrating, deferring, or forgiving a loan, especially if you have a federal student loan. These protections no longer apply to student loan balances sent to credit cards.
Additional Factors to Consider When To Pay Student Loans with Credit Card
In other words, if you transfer your debt to a credit card and your financial situation changes, you have less chance to pay.
Pay At Least A Monthly Minimum Payment
If you miss or delay your payment, you may incur a 29.99% penalty APR.
Don’t Exceed Your Credit Card Limits When Transferring Your Student Loan Balance
You can remit only the portion of your balance that can be billed. If you have a $ 20,000 student debt, but only have a $ 10,000 credit line on your balance transfer card, you can only transfer $ 10,000 to your card.
The remaining $ 10,000 remains in your student loan balance. We do not recommend using more than 30% of your credit line, as high borrowing rates can reduce your creditworthiness.
Obtain Prior Approval Before Applying
Only apply for credit cards that meet your needs and that you believe will be approved. Pre-approval gives you an idea of whether you will be approved and what credit line you can expect.
Knowing your credit line is especially important for balance transfer cards. This allows you to compare offers and find the card that best suits your needs.
Pre-approval protects your credit score because it is a soft request that does not affect your creditworthiness, unlike hard inquiries that are completed when you submit the entire application.
Avoid Annual Fees
Annual membership fees can be used to digest the savings you get when paying off your student loan with a credit card. Ideally, you should look for a credit card with no annual fee.
If you choose an annual fee card, make sure you save at least as much as your annual fee when paying back your student loan with your credit card.
Choose The Lowest Possible APR Credit Card
Even if you plan to pay the full balance before paying interest, you may want to look for a low APR card in case your payments don’t go as planned.
Credit Cards To Consider For Paying Off Your Student Loan
Whether you want to use your credit card with Gift of College or Plastiq, or need a card that allows you to accumulate rewards that you can use to pay off your debts, here are a few things to consider of pay student loans with credit card .
If you’re looking for a credit card that offers enough benefits for a Gift of College or Plastiq gift card, the Discover- Miles card is your choice. Cards typically offer 1.5 miles per dollar for each purchase, but Discover matches every mile earned in the first year and offers a 3% benefit in the meantime.
It’s a travel reward credit card, but instead of booking a trip, you can use your miles to deposit money into your checking account.
Alliant Cashback Visa-Signature Credit Card
This card offers 3% cash back on every purchase during the first year and 2.5% cashback thereafter. This is suitable for paying loans and earning rewards using a credit card.
However, the card will charge an annual fee of $ 99 after the first year. This cuts into the value you get from your rewards program.
Finally, the Alliant Credit Union requires you to be a member before you can apply for a card. You can apply for membership as part of the credit card application process. Once your credit card is approved, you will need to fill out an Alliant membership application.
If you use rewards to pay off your student loan rather than risk accumulating a balance, you may want to consider Upromise-Mastercard. The card offers just a 1.25% cash back on every purchase, which isn’t as impressive as the other cards we cover.
However, some programs allow you to round all purchases to the nearest dollar and pay the difference to your rewards account. You can then use these rewards to repay your student loan debt.
Reward percentages are also less impressive, but compulsory savings programs help you make more payments on your student loans without changing your spending habits or noticing big budget differences.
If you link your Upromise account to a 529 college savings plan, your card will not charge an annual fee and a 15% cashback bonus.
Overall, it’s not a bad idea to pay student loans with credit card if you can get a reward and avoid having your balance on your card from month to month. But this should not be an excuse to delay paying bills.
You should also keep in mind the credit limit of your card. Student loan payments can be quite high and there is a risk that using more than 30% of available credit will degrade your creditworthiness.
Frequently Asked Questions (FAQs)
Can I pay student loans with credit card?
You cannot usually pay a student loan with a credit card directly to a student loan provider or lender. However, it is possible to use a third-party payment service or credit line to pay off a student loan – for example, by transferring a 0% APR card or by taking a cash advance.
How do you pay student loans with credit card?
When you pay student loans with credit card, you can: Expand your payment history. If you pay student loans with credit card on time and then pay off your card balance on time, you can make more positive payments in your credit history. Change your credit mix.
What happens if you don’t pay off student loans?
Let your lender know if you have problems repaying your student loan. If you do not pay off your student loan within 90 days, you will consider the debt overdue, which means your credit rating will hit. After 270 days, the student loan is in arrears and can then be transferred to a collection company to repay.
Do student loans affect the debt-to-income ratio?
Student loan debt affects your debt-to-income ratio, your creditworthiness, and your ability to save your down payment. Student loan debt increases your debt-to-income ratio and can affect your mortgage eligibility as well as the interest rate you can borrow.
Can you pay student loans with credit card nelnet?
While paying student loans with credit card may seem like a great idea, the truth is that many federal lenders and private lenders do not offer this option. But unfortunately, the federal loan manager Nelnet does not allow borrowers to pay student loans with credit card.