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.

  • 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.

  • 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.

  • Kevin Wood

    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.

  • Tsarkov19

    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.

  • 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!

    • Tawney High

      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.

    • amay17

      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

  • The Snake

    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.