The average student loan borrower who graduated in 2014 has $33,000 in student loans to pay back, the Wall Street Journal reports. If you have to repay tens of thousands of dollars in the years to come, wouldn’t it be nice to earn credit card rewards along the way? Getting 1% back would help put some money back in your pocket.

But not all student loan servicers accept credit card payments. There are also good reasons for not shifting your student loan balance to a credit card. Let’s take a look at whether you can earn credit card rewards from paying your student loans and whether you should try to do it.

Paying Navient Student Loans by Credit Card

Federal student loan servicer Navient, which took over Sallie Mae’s student loan servicing in 2014 (see How Sallie Mae Affects Student Loans for the history), doesn’t offer a credit card payment option on its website. Paying by credit card requires taking the extra step of calling customer service. Navient doesn’t charge a credit card convenience fee, but there is a phone payment fee. Navient doesn’t disclose how much this fee is and didn’t respond to our request for comment by press time.

The FAQ section of Navient’s website, available only to current customers after logging in, says borrowers can pay with a Visa or MasterCard over the phone, but only for the amount due. The phone payment fee will probably wipe out, if not exceed, any credit card rewards you might earn by making a payment this way.

Paying Other Student Loans by Credit Card

If another company is your student loan servicer – and if it accepts credit card payments for a low fee or no fee (or is willing to waive the fee) – you might be able to earn significant cash back by making a student loan payment on your credit card if you’re someone who always pays your credit card bill in full.

First, you’ll need to apply, and be approved for, a credit card with a large sign-on bonus plus ongoing cash rewards. Look for something like $500 cash back after you spend $5,000 within your first three months of card membership, plus 1% back on all purchases. These cards are usually reserved for people with very good to excellent credit (see Find The Top Cash Back Credit Cards).

This is the card you’ll use to make a large, one-time extra payment on your student loan. Set aside the cash to pay off your pending credit card charge, so you don’t end up trading low-interest debt for high-interest debt. Then, before initiating the payment, make sure your credit card issuer won’t characterize the transaction as a cash advance and get confirmation in writing. Also, let your credit card issuer know ahead of time that you're going to be making a large transaction so it won’t be declined or flagged as fraudulent.

After making the payment, keep an eye on your credit card account to make sure the transaction posts as a purchase, not a cash advance. If all goes well, you’ll meet the requirements to earn the sign-up bonus, plus earn 1% back. You’ll then want to pay your credit card bill in full and on time to avoid incurring interest or late fees.

With this strategy, you’ll accomplish three financial goals at once: taking a chunk out of your student loan principal balance, saving all the interest you would have paid on that principal over the years, and earning significant credit card rewards.

And if you’re lucky enough to have a student loan servicer that accepts credit card payments for any amount with no fee, there’s no reason not to pay your student loan bill with your credit card every month, as long as you’re not carrying a credit card balance.

If You’re Struggling, Don’t Do It

If you’re someone who typically carries a credit card balance, it doesn’t make sense to make your student loan payments with your credit card. Student loan interest rates are generally lower than credit card interest rates, so if you’re having trouble making your student loan payments on time, it may be cheaper to incur a late payment fee to the student loan company than to accrue interest on a credit card.

If you’re having trouble making your student loan payments, period, your best option is to look into refinancing or changing the repayment plan on your student loans. (For more, see Time To Consolidate Your Student Loans?)

Will It Hurt Your Credit Score? 

Paying off a large chunk of your student loan with a new credit card can actually help your credit score in several ways. Applying for a new credit card, in and of itself, will temporarily ding your credit score. However, the increase in your total available credit from the new card’s credit line can help your score. Paying down the balance on your student loan can also boost your credit score.

Charging a large payment that uses up more than 20% of your new card’s available credit can hurt your credit score, but if you pay off the charge before your statement is issued, that large balance won’t be reported to the credit bureau and won’t hurt your score. Your on-time bill payment will help your score.

These are general guidelines about how the credit bureaus say different actions affect borrowers’ credit scores. FICO cautions that different actions will affect different consumers’ scores in different ways, depending on the total picture of their credit profile. (For related reading, see 3 Easy Ways To Improve Your Credit Score and The 5 Biggest Factors That Affect Your Credit.)

The Bottom Line

Many student loan servicers won’t let you pay your student loan with a credit card – or will charge a fee for doing so or limit how much you can charge. These rules are in place to save lenders money on credit card processing fees and to keep consumers from turning relatively low-interest student loan debt into higher-interest credit card debt.

But if you have excellent credit-card habits, a chunk of extra cash to pay down your student loan, a great rewards credit card and a student-loan lender that will accept credit card payments without tacking on a fee, you can come out ahead by making student loan payments with your credit card.



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