Can I Pay My Fed Student Loan With a Credit Card?

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If you borrowed money to pay for college and are about to graduate or recently have, you may be wondering, "What's the best way to pay off my fed student loan?"

You likely already know that there are various student loan repayment and consolidation options, but may be frustrated by the length of time it can take to repay those student loans. Depending on the repayment plan, terms can be as long as 25 or even 30 years for a consolidation loan. That might feel like too long to be faced with a loan, especially given that the federal government can be very tenacious when it comes to tracking down borrowers.

If you default on your payments, you may be subject to wage garnishment, or you could have any federal income tax refunds withheld. Some borrowers may think it is easier to pay all or part of their loans using a credit card, but there are factors to take into consideration before taking this approach.

Can You Pay With a Credit Card?

The answer to that question depends primarily on your loan servicer. With a federal student loan that is in good standing, many servicers do not accept credit card payments. You may be able to make payments on private student loans with a credit card, but be aware that you might have to pay a fee to do so.

What if your federal student loan is in default? In that case, you can make a payment with a credit card. Federal Student Aid, or FSA, will accept American Express, Discover, Master Card, and Visa. You can make a payment online by credit or debit card or call them at 1-800-621-3115 (TTY: 1-877-825-9923).

In general, however, it's not wise to pay off student loan debt with a credit card. That's because exchanging a form of known debt for an unknown quantity of debt has risks. Terms can change rapidly on credit cards and a card that once offered zero percent interest or a nice low-interest rate can suddenly increase dramatically, especially if you miss a payment or are late.

Some credit card interest rates can be as high as 20 percent, which can put an even deeper hole in your pocket. You must then be sure that you have the cash available to make your credit card payment, or you actually wind up paying interest twice on the same amount. Having a higher balance on your credit cards might also be seen as a negative factor on your credit report and could endanger your ability to obtain other loans or a mortgage.

The Benefits of Using Credit to Pay Off Your Fed Loan

Some credit cards do come with very nice reward programs, but they might not be worth the risk. If you have a small amount remaining on your student loan and know that you can make the payment to your credit card without incurring additional interest, it might be worth the effort to juggle the payments.

Credit cards will automatically tell you what your monthly payment amount is based on your total balance and interest rate. Federal student loans have a lot of flexibility available in income-based repayment plans that might be more suited to your individual financial situation. By switching balances, you will not be eligible for federal student loan options such as a deferment, forbearance or possible loan forgiveness. In addition, you may be able to deduct student loan interest from your federal income tax returns, while you cannot do this with credit card interest.

Wrapping Up

Although it may sound tempting to pay off student loans with credit cards, it really depends on your financial situation and the payment requirements of your credit card. Make sure you exhaust all of your federal student loan repayment options first and carefully investigate what will happen if you transfer any or all of the outstanding balance on your credit cards. It is imperative that you know exactly what you are getting yourself into.