Can you pay student loans with a credit card?

If you’re making payments on your student loans, you may have asked yourself, “Can you pay student loans with a credit card?” After all, credit cards offer the flexibility to make all sorts of payments. Well, it is possible to make your student loan payments with a credit card, but you’ll likely have to use a third-party service to do it.

Still, the strategy could pay off in some cases. The potential to earn rewards is there, and there are other benefits to be gleaned when you pay your bills with plastic. But the reality is that there are also drawbacks with this strategy. If you pay your bills with a credit card, you typically pay significantly more in interest over time. After all, many student loans (including both federal loans and private student loans) come with interest rates below 5 percent, but the average credit card interest rate is over 20 percent.

There may be other potential benefits and repercussions to consider, too. Here’s what to know about the potential risks and benefits of paying student loans with a credit card, along with a few tips if you decide to take this route.

The risks of paying student loans with a credit card

Using credit to cover regular expenses can pay off in certain cases, but there are also risks involved, including:

Losing money to fees

Most credit card issuers don’t let you pay your student loans directly with a credit card. As a result, you’ll have to get creative when it comes to paying with plastic, and you may have to use a third party to facilitate the transaction. Third parties charge fees, which can add to the amount you owe and wipe out any benefit you get from not paying directly.

Racking up considerable debt

If you rely on credit too heavily, you could wind up racking up credit card debt that won’t go away. Since the average credit card APR is high, you have the potential to start a debt spiral that could be difficult to stop.

Potential damage to your credit score

Your credit utilization ratio makes up 30 percent of your FICO credit score, and running up debt on revolving accounts you have (like credit cards) can cause this rate to increase quickly. If that happens, your credit score might drop.

Missing out on tax deductions and benefits

Paying your federal student loans directly also comes with benefits you could lose out on if you pay your loans off with a credit card. You can deduct student loan interest up to $2,500 on your federal income tax returns, reducing your overall tax burden. You may not qualify for this deduction if your modified adjusted gross income (MAGI) exceeds certain limits set by the IRS. It may benefit you to speak with an accountant before giving up this potential deduction by transferring your loan to a card, since interest payments on personal credit cards aren’t tax-deductible.

Losing consumer protections for federal student loans

Federal student loans also carry some protection against difficult financial circumstances such as deferment or forbearance. If you can’t pay your loan, you can also change your repayment plan. As an alternative to federal student loans, an income-based repayment plan offers variable payments based on your income, which is great for new graduates who are job hunting or taking advantage of the gig economy while they look for work in their field of study.

Potential benefits of paying with a credit card

The benefits of paying your student loans with a credit card can vary from person to person, but here are the main advantages to consider:

Earn rewards on your spending

When you pay student loans and other bills with a card that earns rewards, you get the chance to rack up points and miles on those purchases. Just remember that any fees you pay will eat away at the rewards you earn.

Buy time before your payment is due

Paying with a credit card can buy you some more time until you need to make a payment, which can be helpful during times when money is tight.

Secure a 0% intro APR for a limited time

If you can snag an introductory 0 percent APR, paying eligible student debt with a credit card may help you save money on interest. If you use the card to pay your student loan and then pay off the balance during the intro APR period, you might save some money.

Should you pay your student loans with a credit card?

Although there are plenty of disadvantages, at the end of the day, credit cards can be used to cover student loans and other bills. Whether or not it is a good idea is entirely up to you, but if you don’t already have the cash in hand to make a payment, it may be best to stray away from this method.

If you decide to go this route, there are some added steps you’ll have to take. Here are a few suggestions worth considering while establishing a pay-off plan:

Review your credit

First, get copies of your Equifax, Experian and TransUnion credit reports at AnnualCreditReport.com and fix any mistakes to improve your odds of credit approval. Then, check your credit score to see where you stand and review the cards offered in your credit range.

Consider a rewards or 0% APR card

If you currently have a student credit card that you’ve been using to build credit, you may be able to qualify for a rewards card that will enhance your rewards value. While student credit cards are excellent for building credit, earning student-centric rewards and other perks, they can be limiting due to low credit limits and high interest rates.

Take a look at credit cards with 0 percent intro APR offers to reduce your interest payments when you pay your student loans with your new credit card. You’ll typically need a good-to-excellent credit score to qualify, but if you do, many cards in this niche also let you rack up points or cash back.

Plan your loan payments

Once you’ve been approved for your new card, initiate your student loan payment several days before the due date. Payments by convenience check or Plastiq might take longer than a direct payment. Follow up to ensure the payment process went off without a hitch.

If you’re paying with a 0 percent APR card, create a budget to pay your loan off before the intro APR offer ends. After that, the regular APR kicks in and any remaining balance will start accruing interest.

If you’ve chosen a rewards credit card that offers cash back, you may want to take your earnings and apply them to your statement balance to pay off your debt faster.

The bottom line

You can technically pay your student loans with a credit card, but that doesn’t necessarily mean you should. It’s typically best to skip credit cards unless you have the cash to pay your balance in full each month, so take steps to avoid this option if you can. If you’re struggling with your student loan payments, keep in mind that there are other alternatives that may be worth considering. That includes switching your repayment plan or refinancing your student loans to secure a lower interest rate, a lower monthly payment or both.

Learn more: How to pay off student loans with a credit card