Using your credit card to pay your federal or private student loan can earn you credit card rewards or sign-up bonuses. You can also extend your payment time by utilizing your credit card’s grace period. But, there are things to consider before making student loan payments with your credit card.
Drawbacks of paying your student loan with a credit card
Processing fees
There may be a processing fee imposed by the party accepting your student loan payment. Companies that accept credit card sometimes charge processing fees to help recoup the cost for them to accept credit card payment. Credit card processing fees, while commonly under three percent, could be higher.
Credit card interest rates are typically higher than student loan rates
Unless you plan to pay your student loan with your credit card and pay your entire credit card balance off before you’re credit card’s grace period, you’re almost certain to pay more interest than you would if you had made your student loan payment with a debit card or via a withdrawal from your bank account. This is because credit card interest rates are typically higher than student loan rates.
However, if you’re receiving a credit card incentive that would cover the difference in interest rates, paying your student loan with your credit card may be worthwhile.
Credit card cash advance fees
Some lenders classify loan payments as cash advances and most credit card cash advance fees are high. If your credit card issuer will consider this a cash advance and your cash advance interest rate and student loan monthly payment are high, paying your student loan with a credit card is likely not an economical option.
Depending on your budget, the amount of your student loan payment, and the cash advance interest rate, a cash advance may be reasonable. However, after calculating how much interest you’d pay for the cash advance, if you feel that it’s unreasonable, there are steps that you can take to determine if the payment would even be classified as a cash advance. And, in the event that you’re still unsure of the how the student loan payment would be classified, there are ways to limit how much interest you pay for the cash advance.
You can contact your credit card issuer before you make your student loan payment with your credit card and ask them if student loan payments are classified as cash advances. You can also just make a partial student loan payment with your credit card and wait about a week for the payment to post to your credit card account. If your cash advance limit has decreased, the student loan payment was classified as a cash advance.
Interest on cash advances start accruing immediately. So, if you f it was classified as such and you don’t want to continue to letting the interest accrue, pay down your credit card bill by submitting a payment for the amount of your student loan payment, plus any interest that would have accrued. You’ll also want to review your credit card terms and/or contact your card issuer to determine how payments are applied to your credit card account when part of your balance consists of a cash advance.
Consider the following before paying your student loan with a credit card
Will any potential credit card processing fee, credit card cash advance fee, or credit card interest put you in a financial bind, even if temporarily? If so, and you’re still willing to pay your student loan with your credit card, it’s likely that you’re experiencing financial distress and should should contact your student loan servicer to discuss your repayment options.
In fact, even if you don’t plan on following through with the credit card payment, you should still connect with your loan servicer to discuss your repayment options.
Your loan servicer could provide you with solutions, one of which would include your servicer allowing you to miss one or more payments. A lower monthly payment is also a possibility. In fact, depending on your financial situation, your student loan payment could be as low as $0.
To locate the servicer of your federal student loan and discuss your repayment options, you can view our guide on locating your federal student loan servicer, and/or our guide for tips on locating your private student loan servicer.