12

As far as I can tell, it's not possible to pay off student loan debt with a credit card. I'm currently making payments through Great Lakes borrowing services. There is clearly only an option to add a bank account.

I'm curious whether or not there are any work-arounds? I'd love to reap the rewards of credit card cash back on my loan payments.

  • Do you already use the credit card for all of your other spending? Do you carry a balance or pay it off each month? – D Stanley Jan 3 '18 at 18:15
  • 1
    The only workarounds would incur more fees than the rewards you'd reap. The reason they don't accept credit cards is to not eat the fees. – Hart CO Jan 3 '18 at 18:17
  • @DStanley Yes, I use it for all spending, paying it in full each month. – Kellen Jan 3 '18 at 18:38
  • 2
    doctorofcredit.com/… cites a notice about this being a blanket rule from the US treasury effecting all federally backed student loans. – Freiheit Jan 3 '18 at 20:27
  • 7
    It is even possible to pay the IRS the balance due on your income tax with a credit card, but the IRS tacks on a fee (about 3-4%) so that it collects the full amount of the tax due from the credit card company and the credit card company puts (tax due + 4%) on your bill for you to pay. Yes, you might get 1-2% of this amount back as credit cards rewards but never enough to make up for the tack-on fee. Some credit cards give as much as 5% back for short periods of time for selected categories of merchants, but I have never noticed the IRS on the list. Amazon, yes, IRS no. – Dilip Sarwate Jan 4 '18 at 3:15
29

Probably not, and here's why:

  • Credit card make their money by charging retailers 2-3% for using their services. They also make money on interest and late fees, but the retail charge is a large source of income, and applicable even if you don't carry a balance.
  • Retailers bake this cost into their prices. You used to see different prices for cash vs. credit from some retailers, but those are largely gone. Instead you see the fee passed on when retailers or agencies allow you to use a credit card for items that they have no price control over (e.g. auto registration fees at the local DMV)
  • The fee they charge is higher than the cash back or rewards that they give you, so when you choose to use a credit card versus paying cash just to get the reward, then the bank makes a net profit.
  • If the loan servicer did not pass the fee on to you, they'd have to eat the fee with no benefit for them
  • If the loan servicer passed the fee on to you, then you're probably paying more in fees than you'd get in rewards (though there are exceptions).

That's also why cash advances incur a 2-3% fee - it's essentially the fee that the card company would have gotten from whatever retailer that you're spending the cash on.

  • 3
    Would discharge in bankruptcy also be a concern? A feature of student loans (in the US at least) is that they are not (generally) dischargeable in bankruptcy. Credit card debt is. Any credit card issuer or other lender would be taking on a bit of risk to allow use of their credit to pay off student loan debt since their loan to the borrower would then be at risk if there was a bankruptcy. If I can cite actual law or precedent I'll post this as an edit or an answer. – Freiheit Jan 3 '18 at 20:25
  • Ack, my hypothesis was wrong! creditcards.com/credit-card-news/… . Its treated like a refinance and remains un-dischargeable. – Freiheit Jan 3 '18 at 20:31
  • @Freiheit interesting - I had not considered that angle. – D Stanley Jan 3 '18 at 20:33
5

To answer question you have asked:

I have never looked into this so I am not sure if they allow it, but it may be possible to take a cash advance and immediately do a balance transfer to a low-APR card.

Of course you will still incur fees, but hopefully the interest rate would be worth it.

To answer the extra comment you have added:

No, you will not get the cash back on this.

3

Yes its possible, but in a round about way, and with a ~1% fee.

A "Gift of College" (GOC) account can be used for this purpose. They can be used to pay student loans. You can find a full break down of the method here, but the short of it is you can buy G.O.C. "gift cards" (used to load a Gift of college account, to pay student loans) at Toys R' Us with a credit card. In short;

  1. Open a Gift Of College account online, and link it to your student loan account (free).
  2. Buy Gift of College gift cards at Toys R' Us with a credit card. Buy in $500 increments. You will incur a 1% fee in this step for the price of the "gift card" (around $6 I believe). You can buy GOC gift cards online, but in lower increments (effectively increasing the fee % you are paying).
  3. Load the GOC gift card to your GOC account online, then use the account to make a payment towards the loan.

That's it. A few caveats;

  • You may not find the GOC gift cards at your local Toys R Us.
  • If you find them, they may have a policy which dissalows buying gift cards with a credit card.
  • Even if they don't have said policy, some clerks try to apply limitations that don't exist. In this case, its worth trying a different day with a different clerk.
  • GOC may not have (or may remove) your student loan processor at any time.
  • GOC may decide your account has suspicious activity and shut you down. In this case, you would most likely get your money back, but it would be a hassle.
  • Your CC company may flag you for suspicious activity. In the best case, they just confirm the transactions were done by you. In the worst case they shut you down for 'manufacturing spend'.

The last two cases are unlikely, I think, but still possible. Keep all documents/receipts/gc's just in case, and start small (for example, try a $1 transaction to make sure the workflow works for you before ramping up).

  • "The last two cases are unlikely" - Google "Amex war on gaming", "us bank gift card shut down" – xiaomy Jan 4 '18 at 19:49
  • I'm familiar with the Amex rat team, and various shut down reports. IMHO "pigs get fat, hogs get slaughtered". OP is not a churner, nor a heavy MS'r. Thus the risk for them is probably very low, which is why I say unlikely. If they were asking how to ramp up to over 100K in MS a year, it would yield a different answer (not to mention, be off topic) – n00b Jan 4 '18 at 20:00
  • I'd agree with you a year ago. Unfortunately some of the card issuers are so aggressive now, to the point that one or two GC purchase is enough to shut the entire account down. Only the MSers who follow the news would know how to sidestep that. This game's barrier to entry has risen quite a bit. – xiaomy Jan 4 '18 at 20:17
  • Meh. I disagree. There is a lot of fear mongering going on. In my experience its over blown, but to each their own. – n00b Jan 4 '18 at 21:58
  • Indeed, but you know it precisely because you follow it and have "experience", which the newcomers don't have. I am simply advising caution when pointing people to this particular direction. – xiaomy Jan 4 '18 at 22:04

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.