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Paying off your student loans with a credit card may seem like a convenient way to take care of the expense every month (especially if you can earn rewards points). But in reality, the process is complicated and can get expensive.
While student loan borrowers typically can’t directly charge their monthly payments onto a credit card through their lender or loan servicer, they can use workarounds to pay their bills with credit. That includes using a third-party payment service, taking out a cash advance or transferring loans to a 0% APR credit card.
In all these scenarios, however, it’s usually best to avoid using your plastic. Doing so means tacking on extra processing fees and likely paying higher interest rates in the long run. Here’s why charging your student loan payment isn’t worth it:
No matter which workaround route you choose, paying off your student loans with a credit card is expensive because of the extra costs you incur.
For example, charging your student loan bill onto a credit card through a third-party provider like Plastiq requires you to pay a 2.85% transaction fee on each payment you make. This means that every $10,000 you pay will come with an additional $285 in fees alone.
If your private lender does offer the option to pay your student loans with a credit card, make sure you know the transaction fee before doing so, as it will likely outweigh any credit card rewards you could earn.
Taking out a cash advance from your available line of credit on a card to pay your student loan bills is another costly workaround. While cash advances are an easy way to get money fast, they often come with an interest rate that’s much higher than the rate you pay on purchases or balance transfers.
For example, the Citi® Double Cash Card has a 13.99% to 23.99% variable APR for purchases and balance transfers, but a 25.24% variable APR for cash advances. Card issuers will also often charge a cash advance fee, which is typically 3% or 5% of the total amount of each cash advance you request. For example, a $250 cash advance with a 5% fee will cost you $12.50.
Some credit cars will allow you to transfer your student loan balance to a 0% APR credit card with a balance transfer offer. This might sound tempting, since the card comes with an interest-free period when you can pay off the loans with no interest.
But there are a few things to consider. The balance transfer fee is usually at least 3% (minimum $5) of the amount transferred. Plus, you’re limited to how much you can transfer, depending the amount of your credit line. So while you might get an interest-free period to pay off your loans, it’s unlikely you’ll be able to transfer your entire balance if you have significant debt. And if you don’t pay off the balance before the intro period is over, you’ll wind up paying credit card interest rates (usually 10 to 20% or more) rather than student loan rates (which tend to be around 5 to 10%, sometimes less).
With this new credit card, you can use your cash back to pay off student loan debt
SoFi student loan customers should check out the recently launched SoFi Credit Card, which rewards cardholders when they use the cash back earned from purchases to improve their financial big picture. Cardmembers earn 2% unlimited cash back on all eligible purchases when redeemed to pay off your SoFi student or personal loan debt, save in SoFi Money® or invest with SoFi Invest® accounts.
You can read more about the SoFi Credit Card here.
For tens of millions of federal student loan borrowers, payments and interest accrual will continue to be on freeze through at least September 2021. Take advantage of this postponement period by paying your higher priority bills and debt, like high-interest credit card balances.
And if you can afford to still make your payments on your federal loans most experts suggest you do so, since any money paid toward your loan will go directly to chipping away at your principal. Use this time to make a more substantial dent in your student loan debt.
For private student loan borrowers who are having trouble keeping up with their monthly payments, reach out to your lender about your options to reduce or pause your payments in light of the ongoing pandemic. You may want to refinance if you are paying a high interest rate.
Through refinancing, you can exchange your current private student loan(s) with a new loan from a different private lender. By doing so, you may qualify for a much lower interest rate while also getting the chance to customize your repayment plan. You may want to extend your loan term in order to have lower monthly payments, or shorten your term to accelerate your student debt payoff and save more money in interest over the long run.
Select analyzed and compared private student loan funding from national banks, credit unions and online lenders to rank your best options. Here are our top picks for the best student loan refinance companies:
No origination fees to refinance
Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans
Variable rates (APR)
From 2.24%; from 2.37% for medical/dental residents (rates include a 0.25% autopay discount)
Fixed rates (APR)
From 2.99%; from 3.12% for medical/dental residents (rates include a 0.25% autopay discount)
From $5,000; over $10,000 for medical/dental residency loans
Minimum credit score
Allow for a co-signer
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.