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Can I pay my Student Loans with my Credit Card?

The Sherpa Blog, Student Loans 4 Comments

I know what you are thinking… you are stuck paying student loans each month, you might as well rack up some credit card rewards in the process.  Unfortunately, it isn’t that easy.

Like most rent payments, student loan payments typically have to be made by check or by an electronic withdrawal from your bank account.  Aside from a few exceptions we will discuss later, you won’t be able to use your credit (or debit) card to pay your student loan bills.

Why can’t I use my credit card or debit card?

Suppose you have a monthly payment of $300 on your student loans.  From your perspective whether you make the payment from your checking account or credit account you are still spending the same $300.  However, this is not the case from the student lender side.  If they accept your credit card, they will have to pay the credit card company a transaction fee that normally runs around 2%.  This means that instead of collecting $300, they would collect $294.  Over the course of a year that means the student loan company would lose out on $72.  Now imagine that little loss, but multiplied by the many thousands of borrowers.

What are the exceptions?

Some credit card companies will let you write a check against your credit card account.  From the lender perspective, it is the same as a personal check so they will accept it.  However, these checks normally don’t earn any reward points, so there isn’t much of an advantage…  In fact, you might end up running into balance transfer fees if you are not careful.  And if you are doing it because you don’t otherwise have the money, you are setting yourself up for a very messy situation.  Turning student loan debt into credit card debt is just making a difficult problem even worse.

Another conceivable exception would be to take a cash advance on your credit card.  However, like the check against your credit card, this is a dangerous option.  Cash advances also can carry a higher APR and have fees associated with them.

The final exception would be for people who are delinquent or in collections.  While company policy for your student loan lender may be to not accept credit card payments, if they think that they only way they are going to see any money is to accept a credit card, they might budge.  Again, this approach is not advisable.  Playing chicken with your student loans is dangerous, and it certainly isn’t worth it if you are just trying to score a few extra reward points.

Can paying off my student loans with my credit card work for me?

Probably not.  Both student loan lenders and credit card companies are in business to make money.  They have teams of lawyers skilled at the art of fine print and keeping an extra percent whenever they can get it.  Trying this approach will likely leave you disappointed and more poor.

The SherpaCan I pay my Student Loans with my Credit Card?
  • http://deardebt.com/ Dear Debt

    I’m super bummed about this one — they really want there cold hard cash. I WOULD be able to fulfill my dream of traveling the world if I could pay my loans with my rewards credit cards.

  • http://www.makemoneyyourway.com/ Clarisse @ Make Money Your Way

    If I have a student loan I would prefer to pay it with cash. It’s not ideal to pay your loan by using a credit card too.

  • MoneySmartGuides

    Ha! I’ve researched this idea to wits end! I don’t know if anything has changed in the years since I paid off my student loans but at the time, I couldn’t find anything. I was able to use my Thank You points towards my student loans though. I used one credit card for all of my spending and then would get a check sent to my student loan company when I would redeem the points. The ratio wasn’t the best, 10,000 points for $100. I would make it a point to get bonus point by shopping online, etc. I think in total I was able to get close to $400 towards my student loans.

  • Syed

    One of my student loan lenders offers a credit card option but there is a fee tacked on of course. I agree with the previous comment ThankYou points are probably the best thing I’ve seen so far. I signed up for the Citi promotion for their checking and credit card account and wound up with over 75,000 TY points. That’s $750 to put towards student loans! Not earth shattering but it’s $750 I won’t have to spend myself.

    They have TY point promotions pretty often so it’s worth checking out.