Can you pay off student loans with a credit card Higher education comes with quite a price tag in America and the most sought after solution to this are the student loans. Students in the US can borrow from both the federal government as well as private organizations. According to Education Data, 43.4 million Americans owe student loan debt as of 2022 with the average debt being $37,113.
Theoretically, it’s possible to pay off student loans with a credit card but there’s a few problems. First off, student loans are a pretty hefty sum. So to be able to pay them via credit card, you’d have to have a high credit limit. Secondly, federal student loans servicers do not allow paying them off via credit card directly while some private lenders are more flexible and allow direct payments.
Discussed below are the ways you can make student loan payments with a credit card, whether federal or private. However, to make this fully clear, no option is really attractive when it comes to using a credit card for the purpose of student loan repayment.
3 ways to pay your student loan with credit card
1- Funds Transfer
As federal student loan servicers do not allow direct credit card payment, you can use a third party payment service like Plastiq and transfer funds via your credit card to their account to pay off the debt. As for private student loans, private lenders are more flexible and some of them allow for direct debt-servicing via credit card but there’s a few caveats. The lender will charge a hefty transaction fee and your credit limit could also become an obstacle.
2- Transfer of Student Debt to Credit Debt
This option should only be considered if you’re able to comfortably pay your credit debt and not recommended if you’re already having trouble with it. On top of that, not all credit card companies allow for this option. Some of those that do, include, Citi, Bank of America, Wells Fargo and Capital One among others.
However, you’d have to be cautious that your credit card issuer does not characterize this transfer as a Cash Advance. You can verify this after you’re done with the process, by monitoring your account to see if the transaction was posted as purchase or a cash advance.
The upside to transfer of student debt to your credit debt is that you’ll qualify to earn 1% of this debt back. Some companies could also compensate you by increasing your credit score. Again, this method would be possible only if you have an appropriate credit limit for your student loan. Another benefit of this method is that if you have 0% introductory APR, you can pay off the newly increased credit debt free of interest for some months.
3- Cash Advance
This is probably the worst option on the table because of the interest you’d be paying. You can get a cash advance on your credit line to make a loan payment but these come with insanely high interest rates, as high as 25% and unlike bank transfers, APR grace periods do not apply to cash advances.
With options for paying student debt with credit card covered, let’s move to the alternatives to this and some are pretty good.
Alternatives to Paying Your Student Loan with Credit Card
1- Consider Teaching Jobs
People who teach for 5 consecutive years at low-income schools can have $5000 of their student loan debt forgiven. Secondary school level Math and Science teachers, on the other hand, can have $17,500 of their student debt forgiven if they teach for the same period.
2- Forbearance and Deferment
Forbearance refers to getting your payment obligations for student loans postponed. Federal student loans qualify for deferment on the grounds of unemployment or forbearance on the grounds of financial hardship. Private student loans also qualify for these options. But bear in mind, that postponement of loan payment obligations accrue interest. You’d be relieved in the short to medium run but would pay more in the long run.
3- Income-Driven Repayment Plan
You can also apply for an income-driven repayment plan if your lender was a federal student loan servicer. Income-driven repayment plans allow you to cap your payment installations at a discretionary portion of your income. If you’re unemployed, you’ll have to pay nothing in installments as long as you’re unemployed. The repayment term can stretch to 25 years. You’d be paying your loan to this term limit at the end of which, the remaining amount, if any, would be forgiven.
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