Paying off student loans with a credit card is an ideal scenario for many borrowers.
Using a credit card to pay off student loans has two big advantages:
- Borrowers can quickly rack up credit card rewards and points.
- Borrowers can strategically use a 0% credit card intro rates to save on interest.
Unfortunately, student loan lenders are not very accommodating. Instead of being willing to pay merchant fees, they require borrowers to make payments via a check or bank transfer.
The silver lining for borrowers is that there are a couple of workarounds.
Work with a payment processing company
Companies like Plastiq will allow borrowers to make credit card payments towards student loans.
The process is relatively simple. The borrower tells Plastiq the name of the lender being paid. Plastiq charges the borrower’s credit card. Plastiq uses those funds to pay the lender.
Plastiq makes its money by charging a 2.85% transaction fee. This means a $100 lender payment will be charged as $102.85 to the borrower’s credit card.
Because of the high transaction fee, this approach usually doesn’t work for borrowers looking to earn rewards. Most credit cards max out at about a 2% reward rate, so using this approach would put most borrowers behind by .85% or more. The one exception would be for borrowers who are working towards a sign-up bonus with a credit card company. If the student loan payment helps meet the minimum spend requirement, it could make the transaction fee money well spent.
There are a couple of concerns specific to this strategy. First, borrowers should be certain they are working with a reputable company. The last thing they want is to be charged for the payment and then have the money not end up with the lender. The second issue is payment processing. Make sure you start the process with plenty of time before your balance is due. A processing issue could cause the wrong account to be credited or cause a delay and a late fee.
Convince your lender a credit card is the only way they will get paid
The problem with making credit card payments towards student loans isn’t that lenders can’t process credit card payments. The issue is that they don’t want to.
Instead of making a payment through the typical payment portal on the loan website, call in and ask to make a credit card payment. Explain that payment via credit card is the only way you will be able to make your payment.
Borrowers who have fallen behind on payments and are now getting serious about their student debt will have the best chances of being successful with this approach.
Lenders each handle this situation differently, so your mileage may vary from one lender to the next.
When you call, one thing that can help is to ask the representative whether or not they have the authority to accept and process credit card payments. If they are not permitted to do so, ask to speak to someone who does.
Credit Card Payments for Student Loans are Risky
Borrowers should keep in mind that the best-case scenario for this approach is that they will come out 1-2% ahead.
When it comes to student loan repayment, every little bit helps, but using credit cards comes with significant risks.
Borrowers taking advantage of a 0% introductory interest rate should be especially careful. When the rate jumps up to the “regular” interest rate, it could easily be above 20%. That is a financial time bomb. Anyone using the 0% interest rate to pay down student debt should be certain that they will be able to pay off the balance in full before the promotion expires.
If the strategy calls for jumping from one new card to the next to keep the interest rate at 0%, it is probably too risky and not worth doing.
Another factor to consider is the tax implications. Credit card interest cannot be deducted, but student loan interest can be. If the numbers are tight, this difference might tip the scales.
Final Thoughts
Using a credit card to make student loan payments is one of those things that sounds great in theory, but in reality, it is a bust.
There are certainly a few circumstances where it can make sense, but for the most part, the effort required and the risk involved make it a bad option.
Sallie Mae will actually accept credit card payments over the phone but, only up to the minimum monthly payment. And you can only make a credit card payment for the current month. You have to wait another 30 days to make the next credit card payment. You cannot make a big payment or pay it off completely with a credit card. So it depends on the value of the airline miles or hotel points that you earn through the credit card, versus the interest that Sallie Mae charges for maintaining the loan.
It wouldn’t make sense to pay with your credit card because that has a greater interest rate than you student loans without the tax deductions. But if you had a 0% introductory card you could. You can set up a paypal account and send yourself an invoice, pay the 2% or whatever it is processing fee for credit card transactions, and then send the deposit you just made in your checking account to your student loan. It’s a few added steps but if you have a 0% introductory rate it would make perfect sense, especially if you are paying 6.85% right now on your loans. So yes you can do it!
Can you give me more information about how to do this???? I have 0% interest credit card that I want to transfer my current student loans to. It would save me about 700 towards interest. The loans are through Sallie mae and they won’t take credit card payment. How do I use paypal….???Thank you!
I don’t know about paypal, but will your credit card company let you write a check against your credit card? My credit card company once sent me a sheet of checks that I could write and the money spent would just be added to my credit card balance… just watch out for fees associated with this move.
For a minute there I just thought you broke the space time continuum, and I actually attempted a small invoice payment to myself just to see… If you invoice yourself for $10 through PayPal and pay it with your credit card, you are going to receive $9.41 in your account (Losing 6% to paypal) and surely if you did this with a larger amount on a credit card not only would you be stupid (again…6%) but surely the credit card will not be happy about having their cash advance fee going to paypal instead of them
I was thinking of it more from the perspective of transferring all or a portion of a SL balance to a credit card with a zero interest promotional period, then pounding away on that interest free and paying the transferred part off within the promotional period.
Interesting idea… you would have a pretty hard time getting any lender to accept a large payment via credit card, but if you could, it would be a pretty savvy move… assuming you got it paid off before your 0% promo period ended.
Same with a mortgage payment and a car payment — credit cards not accepted for regular payments. But you can set up automatic CC payments for most or all of your utility bills. I rack up a lot of cash back via my 1% Amazon card and 2% Amex.
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.
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.
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.
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.