Can You Pay Student Loans With a Credit Card? A Quick Guide

The student loan crisis that’s swept the U.S. over the last decade or so is no secret, and it's left many graduates in financial hardship as they put every penny towards monthly payments. If this sounds familiar, you might be considering borrowing more to fund your loan. Or maybe you just want to take advantage of those enticing credit card rewards and other perks by using them toward your debt. But can you pay student loans with a credit card?

Student loans are a complicated beast, so our first stop is discussing the difference between federal and private loans. Then, we’ll delve into whether using a credit card to pay is a viable option — along with some promising alternatives.

Are all student loans the same?

Before you start wondering how you’ll repay your student loan, consider which type you have. Although people often discuss student loans as though they’re all the same, there are two distinct kinds: federal student loans and private student loans. 

As you can guess by the name, the government provides one and various private lenders (e.g., banks or credit unions) provide the other. But the source of the lender isn’t where the differences end.

Depending on which type you have, you’ll have different repayment options, perks and terms and conditions. For instance, most federal loans have a grace period of at least six months before you need to make payments, but not every private loan has this feature ( they’re all different).

Whichever type of loan you have, you’ll normally make your payments by authorizing a transfer from your bank account. However, this isn’t necessarily the only option.

Can you pay student loans with a credit card?

Given all the complexities of student loans, it shouldn’t come as a surprise that the answer to whether you can pay your loan with a credit card is: it depends. Federal student loan servicers don’t allow the use of credit cards. If you have a private loan, you’ll need to check with your lender to see if it accepts credit card payments.

But, there are a few workarounds.

Although you generally can’t make direct credit card payments, you might be able to use a third-party service to transfer your loan to another card (e.g., Plastiq). A second option is asking your credit card provider for a cash advance and then using that to pay your loan. But are any of these choices a good idea?

Should you use a credit card for student loan payments?

Figuring out whether it’s a good idea to use credit cards to make student loan payments is a more straightforward question to answer than the one above. It’s usually a bad idea.

Why? Let’s look at each reason.

Higher rates

Credit card interest rates are usually higher than student loans. The average interest rate for a fixed 10-year student loan is 5.72%, while the median credit card rate is 19.49%. So, if you pay student loans by credit card and fail to pay off your credit card balance at the end of the month, you’d face more interest. This can lead to replacing your student loan debt with credit card debt.

Higher credit utilization ratio

Using your credit card to make hefty payments will mean using more of your credit limit, which can harm your credit score due to a higher credit utilization ratio.

Extra fees

If you opt for a cash advance from your credit card, you’ll have to pay a fee. The fee is often 3% to 5%. You could also face transaction fees if you use a third-party payment service.

Fewer options 

If you pay by credit card, you’ll reduce the repayment options you have at your disposal. You can’t negotiate with a credit card company in the same way you can with a student loan servicer. Some lenders offer reduced interest rates during times of crisis or even provide special protections to their borrowers. 

You’ll also miss out on programs like loan forgiveness or deferment.

No deduction

One of the few perks of having a student loan is the student loan interest deduction, which means you can subtract up to $2,500 of your student loan interest from your taxable income — resulting in a lower tax bill. However, there’s no deduction for credit card interest, so make sure you account for this when comparing the pros and cons of both methods.

An exception to the rule

Combined, all of these points make a pretty convincing case. Yet there are some scenarios where paying by credit card could be worth considering. 

If you have a credit card with an annual percentage rate (APR) offer — such as 0% for the first 12 months — then it could be worth using it to pay off some of your student loan. You’ll stop the interest accumulating on it while also benefiting from greater flexibility.

However, you should only do this if you’re confident about making your payments before the introductory period ends.

What are the best alternatives to using a credit card?

Given that credit cards aren’t a viable option for most student loan borrowers, you’re probably wondering what you should do instead. That depends on why you wanted to use your credit card to pay your student loan debt in the first place. If you simply wanted to access perks like cash back rewards, you’re probably just going to have to go without them. But if you’re struggling to make the payments, here are some suggestions.

Student loan forgiveness

What’s better than paying back a student loan with a zero-interest credit card? Getting your student loan forgiven. Although this isn’t possible for everyone, those who have federal student loans and work in the public or nonprofit sector may be eligible.

Deferment

If you’re going through tough times, your student loan provider may be able to pause your monthly payments temporarily to help you get by. This is also known as forbearance, and you should contact your lender for more information.

Income-driven repayment plans

Income-driven repayment plans lower your monthly payments to what you can afford (based on factors like your income and your household size). This can help regain control of your debt, but they’re only available to those with federal student loans.

Direct loan consolidation

For borrowers with more than one federal loan, you may be able to consolidate your loans into one. This makes it easier to stay on top of payments, and it can also result in a longer repayment term — and, therefore, lower monthly payments.

Refinancing 

Most of the options above are for federal student loan borrowers. If you have a private loan already (or wouldn’t mind switching to the private sector), you could also consider student loan refinancing. A refinance effectively means you’ll take out a new loan to replace the previous one.

It can result in a lower interest rate, especially if your FICO Score has lowered since you took out your student loan debt. As a result, your monthly payments will become lower.

Look before you leap

There are plenty of options to stop your student loan balance from spiraling out of control; there are plenty of options. But, for most people, credit cards aren’t one of them. Instead, you can consider solutions like refinancing, deferment or payment plans.

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