Can You Pay Student Loans With a Credit Card?

Paying With a Credit Card — Federal vs. Private Student Loans

The short answer is no, you cannot directly pay your federal student loans using a credit card. The U.S. Department of the Treasury’s regulations prohibit federal student loan lenders from accepting credit card payments. There are ways to get around these regulations, but there are risks involved. 

Private lenders aren’t subject to the same regulations. Each lender sets the terms of repayment. You can check your loan agreement to see what your payment options are. However, just like with federal loans, there are risks to repaying private student loans with a credit card. You should weigh your options carefully before doing so.

What Are the Risks of Using a Credit Card To Make Student Loan Payments?

Using a credit card to make student loan payments generally has more drawbacks than benefits. Here are the main downsides to using a credit card to pay off your student loans:

• Credit card interest rates are usually much higher than federal student loan interest rates. If you aren’t able to pay off your entire credit card balance when it’s due, interest accrues and your debt will increase more than it would if it wasn’t on your credit card balance.

• You have to use a third-party payment service, like Plastiq, which charges a 2.85% fee. If you’re making a $200 payment, you’ll pay almost $6 in fees for that single payment.

• You risk hurting your credit score. If your credit card balance gets too high compared to your borrowing limit, your credit utilization ratio will increase, which hurts your credit score. Additionally, if you miss a payment, this will be recorded on your credit report, and your credit score will take a big hit.

• You aren’t taking advantage of flexible federal student loan repayment options. Federal lenders and loan servicers are much more generous with options for borrowers who are struggling. Your credit card company likely won’t be. If you’re thinking of using a credit card to pay your loan because you don’t have the money on hand, consider applying for deferment or forbearance instead, or see if you can switch repayment plans to get a more affordable monthly payment. 

Keep these downsides in mind if you’re thinking of using a credit card to make your student loan payment. Also, make sure you have an emergency fund for unexpected expenses. If you don’t and have to put those on your card too, you can quickly find yourself with an overwhelming credit card balance. 

How Will My Credit Score Be Affected if I Pay My Student Loans Using a Credit Card?

Five main factors go into calculating your credit score. The two biggest factors are your payment history and credit utilization rate (which just means how much of your total credit limit you’re currently using).

If you miss payments or use too much of your available credit regularly, your credit score will take a hit.

It Could Impact Your Payment History

When it comes to payment history, it’s often much easier for federal student loan borrowers to maintain a positive payment history when they arrange a workable payment plan with their student loan servicer. 

If you’re on an income-based repayment plan, this helps ensure you can make your monthly payments, which will help you build your credit score. If you transfer your student loan debt to a credit card, you may be at a greater risk of missing a payment and damaging your score.

It Could Increase Your Credit Utilization Rate

Transferring student loan debt to a credit card will also increase your credit utilization rate. Each credit card you have has a credit limit. That’s the maximum amount you can charge to the card. Credit scoring agencies like to see that borrowers use less than 30% of their credit limit at any given time. When you increase your credit utilization rate, you get closer to your credit limit, and your credit score will dip as a consequence.

Why Using an Intermediary Service To Make Student Loan Payments Usually Isn't a Good Idea 

If you don’t have enough money in your bank account to cover your student loan payment, you may be considering using an intermediary service like Plastiq. Plastiq acts as a third-party service that allows you to use your credit card to pay your student loan, subject to a 2.85% fee. That comes out to a little under $6 for a $200 payment.

While this probably seems small, it can add up fast if you make this a habit … especially if you aren’t fully paying off your credit card each month and further interest is accruing.

If you’re thinking of using your credit card to pay your student loans so you can rack up airline miles, cash-back rewards, or other benefits, be sure to do the math! It’s rare to find credit cards that offer more than 1%–2% in cash-back rewards. So it’s hard to game the system here and come out ahead.

Why Using Convenience Checks To Make Student Loan Payments Usually Isn't a Good Idea 

Another way to use credit cards to make student loan payments is to use a credit card-issued balance transfer check — called a convenience check. Credit card companies often send these to cardholders when they issue new cards and randomly throughout the life of the card. You can also request these from your credit card issuer. 

Convenience checks are essentially a cash advance. They typically start with 0% interest for a limited promotional period. After that, these cash advances don’t come cheap — the balance transfer fee is typically anywhere between 1%–5%. Again, paying such fees can eventually lead to increasing debt.

With such a high initial fee, any cost savings are usually eaten up on day one. This means you would eventually lose money, instead of saving it. 

If I Shouldn’t Use a Credit Card, but I Can’t Pay My Loan, What Can I Do?

Fortunately, there are many different repayment options available to help student loan borrowers who are struggling to make payments. These options are much less risky compared to attempting to pay your student loans using a credit card. 

You can look into:

• Student loan deferment or forbearance — each allows you to stop making payments temporarily

• A different repayment plan, like an income-based repayment plan

• Student loan consolidation or refinancing to get a lower interest rate and/or more affordable payment

Apply for Deferment or Forbearance 

If you need a temporary break from your student loan payments, consider applying for deferment or forbearance. You can usually get approved for deferment or forbearance if you’re experiencing financial hardship or meet other eligibility requirements.

The main difference between deferment and forbearance is how accruing interest is treated. If you have subsidized federal student loans, the federal government will pick up the tab for interest payments while your loans are in deferment. However, no matter what kind of loan you have, you’ll be responsible for the interest that accrues during forbearance. 

While deferment and forbearance aren’t good long-term solutions, they can be tremendously helpful for people dealing with temporary hardships.

Switch to an Income-Driven Repayment Plan

If you’re looking to make your student loan payments more affordable in the long term, consider getting on an income-based repayment plan. If you aren’t making much, your payment could be as low as $0.

Although interest will continue to grow during your repayment term, you’ll also be eligible for student loan forgiveness on any remaining balance after your repayment period is complete. Depending on which plan you’re on, that will be 20 or 25 years. 

Consolidate or Refinance Your Loans

When you consolidate or refinance a student loan, you basically take out a new loan and use that to pay off your existing student loan(s). This is usually only a good idea if you’re able to get a lower interest rate or monthly payment. Keep in mind that if you refinance federal student loans, they become private loans, and you’ll have fewer repayment options.

Tried Everything Else? It Might Be Time To Consider Filing Bankruptcy

It may be surprising to learn that your student loans can be discharged in bankruptcy. But it’s true! 

To discharge federal student loans, you must prove that repaying your loan results in undue hardship. Proving undue hardship is no easy task, and doing so requires a separate adversary proceeding that takes place in bankruptcy court.

If you have private student loans, the process is often more complex and usually requires the help of a lawyer to do successfully. You can get a free consultation with a lawyer to see if this is right for you.

It is important to note that while credit card debt is usually dischargeable in bankruptcy, you can’t transfer student loan debt to a credit card with the intent to discharge it in bankruptcy. 

If you want to explore this option more, start our free, five-minute screener now. Upsolve is a nonprofit organization that’s helped thousands of Americans discharge millions of dollars in debt. And our help is always free.