Student loans are one of the most widely held forms of consumer debt in the United States. As of 2023, federal and private student loan debt totaled some $1.757 trillion, according to the Education Data Initiative, which estimates that the average student loan debt balance could be as high as $40,114.
If you have to repay tens of thousands of dollars in the years to come, wouldn't it be nice to earn credit card rewards along the way? Getting even 1% back would be something. But is it worth it?
Key Takeaways
- Many student loan servicers do not accept payments by credit card, although some do in certain instances.
- If you are able to pay by credit card, make sure your payment posts as a purchase rather than a cash advance, which can be far more costly.
- Some credit cards now offer a bonus if you redeem rewards to pay your student loan bills.
Can You Pay Student Loans With a Credit Card?
The loan servicers that collect student loan payments often don't accept credit cards. That is especially true for federal student loans.
If you're lucky enough to have a student loan servicer that does accept credit card payments (and without an additional fee), there's no reason not to pay your bill by card—as long as you pay your credit card bill in full and on time every month to avoid incurring interest or late fees.
You can also earn cash-back rewards for your payments if your credit card offers them. If you don't already have a rewards card, you'll need to apply and be approved for a new card—ideally one with a large sign-upbonus in addition to ongoing cash rewards. Look for something like $500 cash back after you spend $5,000 (or more) within your first three months of card membership, plus at least 1% back on all purchases. Bear in mind that these cards are usually reserved for people with very good to excellent credit.
After making a payment with your credit card, check to make sure the transaction posts as a purchase, not a cash advance. Cash advances tend to carry higher interest rates than regular purchases and typically have no grace period—meaning that the interest clock will start ticking from day one.
If your loan servicer doesn't accept direct credit card payments, one option is to use a convenience check. Those are checks provided by your credit card company that you can use to pay bills. When you write a convenience check, that debt will be added to your credit card balance and you'll also be subject to additional fees. What's more, convenience checks are often treated as cash advances, making them even more expensive.
Another alternative is to make payments through a third-party processor like PayPal, Plastiq, Square, or Stripe. These companies will charge your credit card directly and then send a check or electronic payment to your student loan servicer. But beware: You may be charged a fee for using their services, which could outweigh any credit card rewards you'll receive.
Why Using a Credit Card Can a Bad Idea
If you're someone who typically carries a credit card balance, it doesn't make sense to put your student loan payments on your credit card. You'll just be taking on additional debt as you pay down your old debt.
Student loan interest rates are generally lower than credit card interest rates. So, if you're having trouble making your student loan payments on time, it may be cheaper to incur a late payment fee with the student loan company instead of accruing interest on a credit card.
A 2023 study by the Consumer Financial Protection Bureau (CFPB) found that the phone reps at student loan servicers don't always know whether their company accepts credit cards. In a report on junk fees in financial services, the CFPB said its examiners "found that servicers sometimes charged late fees and interest after payments were made on time. Specifically, the servicers' policies did not allow borrowers to pay by credit card; however, sometimes their customer representatives erroneously accepted credit card payments. The servicers then cancelled the payments, and did not offer borrowers the chance to pay again. Instead, the servicers acted as if no payment had been made, and charged the borrowers late fees and additional interest."
Redeeming Credit Card Rewards to Pay Student Loans
A fairly recent innovation are credit cards that let users redeem cash back rewards at a higher rate if they use them to pay their student loan bills.
For example, Sallie Mae, a major private student loan lender, offers the Sallie Mae Accelerate card. It allows users to redeem their cash back for 2% when they use it to pay down student loans, compared to 1.5% for other uses. As the card's terms explain, "if you redeem $100 in Rewards to pay a student loan, you will earn an additional $33.33 in Bonus Rewards, which will be included as part of the student loan payment, resulting in a total payment of $133.33 toward your student loan."
Similarly, Laurel Road, a company that refinances student loans, offers the Laurel Road Student Loan Cashback Credit Card, which also allows users to redeem their cash back for 2% when they use it toward student loans. Laurel Road says it works with 95% of student loan servicers in the U.S.
Do Student Loan Debts Appear on Your Credit Report?
Yes, student loans, like other types of installment loans, can appear on your credit reports. As with any loan, it's important to keep up with the payments or your credit score will suffer.
Can You Transfer Student Loan Debt to a Credit Card?
Some credit card companies, such as Capital One, will allow you to transfer student loan debts to their cards. So, in theory, at least, transferring some portion of your student loan debt to a card with a lower interest rate than your student loan (in particular, a 0% promotional rate) might save you some money.
However, doing so will usually mean paying a balance transfer fee, such as 2% to 5% of the transferred balance, and the transfer itself doesn't earn any rewards, so it's likely to end up being more costly except in rare instances.
You'll also lose the protections that come with student loan debt, particularly on government loans. Those can include extended and income-based repayment plans, payment deferments, forbearance, and even forgiveness of the debt.
Would Transferring Student Loan Debt to a Credit Card Help or Hurt Your Credit Score?
If you apply for a new credit card to transfer your student loan debt to, that will temporarily ding your credit score. However, the increase in your total available credit from the new card's credit line could help boost your score as long as your credit utilization ratio stays low.
The Bottom Line
While it's possible to earn credit cards rewards from repaying your student loans, in most instances the costs you'll incur will outweigh the rewards you earn, often many times over.
