Can I pay my Student Loans with my Credit Card?

Michael Lux Best Of, Blog, Student Loans 12 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.  Turning student loan debt into credit card debt is a dangerous trade and almost never in the interest of the borrower.

[Update 1/18/15]… A new exception to the rule!

We have learned of one additional exception to the no credit card payment rule on student loans.  Some lenders now provide this option for electronic payments made online.  The problem here is that there is a transaction fee associated with these payments.  The fee will almost always end up costing your more than the benefit you get from your rewards card.

[Update 5/10/15]… Another exception!

Some companies will accept credit card payments if you are making the minimum payment on your student loan.  The logic here is the same as those that are delinquent, if you convince your lender that it is the only way you can pay, they may accept it.  It is a lot of work to score some reward miles, but if your minimum payments are high enough, it could be worth the phone call.