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Swiping Right

These credit cards can help you pay down student debt with rewards

You can get a credit card to incentivize paying down your student loan – but is it the best option?

Summary

A credit card that advertises extra rewards for student loan payments may be a good idea, but only for some. And only if cardholders are in the right place to focus on their student debt.

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Young Americans have had their share of economic turmoil, but one financial issue that persists for millennials and Generation Z is student debt.

If you’re working hard on eliminating your student debt, you may be looking for ways to reduce your loan balance quicker. Did you know there are credit cards designed to help you do just that?

Let’s take a look at these cards and analyze whether it may be a good idea for you to try them out.

Check out all the answers from our credit card experts.

Ask Ana a question.

The financial toll of student debt

Like any kind of debt, student debt may feel suffocating.

Currently, the average student debt is around $38,000, according to Education Data Initiative, while the average student loan monthly payment is close to $400.

This sum could easily be half of monthly housing costs in the right location, a car payment or a healthy amount to add to savings. Yet these millennials and Gen Zers have to put it toward paying off their student loans, a long and exhausting financial commitment.

If that describes your situation, it’s no wonder you may want to get out of student debt as soon as possible, directing additional resources to pay it down.

A credit card that offers extra rewards toward your student loan payments can be one tool to help you reduce your student loan balance quicker.

Currently, there are two products in the credit card market that come with higher redemption values when you redeem cash back toward your student loan payments – let’s take a closer look at them.

Credit cards that reward student loan payments

The Laurel Road Student Loan Cashback Card is designed with the sole purpose of encouraging cardholders to pay down their student loans.

The card earns 2% cash back when you redeem the rewards toward your student loans with the majority of U.S. servicers (you can check the list of eligible servicers here). Alternatively, you can redeem 1% cash back toward anything else.

The Laurel Road card also offers an attractive sign-up bonus: You can get $500 in cash back toward any eligible student loan after spending $5,000 in the first 90 days with the card.

If you want to know how much this card can save you, let’s crunch some numbers. Say you owe $30,000 in student debt with a 5% interest rate and your monthly payment is $400. If you spend $1,325 monthly with the Laurel Road card and pay off the balance in full each month, you’ll save $297 in the first year and more than $2,200 over the life of the loan.

The SoFi Credit Card offers a similar option: You can earn 2% cash back redeemable toward paying down SoFi student loans, among other options such as promotional offers through SoFi, savings or investments within a SoFi account and SoFi personal loans. You can also redeem for statement credits, but then your rewards lose half their value.

Should you use these cards?

I see two scenarios where you could benefit from a card like the Laurel Road card.

First: You’re determined to battle your student debt, but you don’t trust yourself to direct extra funds toward it without incentive. In this scenario, you’d put all your spending on one card and use your rewards toward paying down your student loan.

Second: You’re determined to battle your student debt, and you use cash back from multiple rewards credit cards to do it, picking the cards with the highest rewards rates for your spending. In this scenario, the Laurel Road is the flat-rate cash back card you use on purchases outside of your other cards’ bonus categories to earn more than 1% back.

The second scenario makes more financial sense, since you’ll be able to earn more in rewards while also directing cash back toward your student loan payment. Why only earn 2% back in your top spending categories (say, dining or travel) when you can more than double that with a different credit card? Plus, this way your rewards will be much more flexible.

On the other hand, if you are going to take advantage of other cash back cards with better rewards rates in your top spending categories, you might not need one of these student debt-focused cards at all.

The Chase Freedom Flex℠, for instance, could earn you 5% back on rotating bonus categories you activate each quarter (up to $1,500 in purchases per quarter, then 1%), 5% back on travel purchased through Chase Ultimate Rewards, 3% on dining, 3% on drugstore purchases and 1% on everything else. Not only would you likely earn more with the Flex than a card like the SoFi card, but you can choose to direct some of your cash back to your student loan and some to other redemption options.

Whether you combine a card like the Flex with the Laurel Road card or just use the Flex on its own all depends on your preferred card strategy.

For those who like to keep it simple with one card and who don’t think they have the discipline to direct extra money from other rewards cards toward repaying your student debt, the Laurel Road card can provide some motivation.

Pick your financial battles wisely

With all that said, remember that student debt isn’t the most detrimental to your financial health. It can be a good idea to pay a bit extra toward your student loan when you can, especially if the interest rate is high. However, don’t feel too anxious about it if you still have other financial goals to contribute toward.

Before you focus on directing every extra penny toward your student loan, think of other financial priorities that may be more important, namely:

  • Having your credit card debt paid off (no need to even think about your student loans until you’re out of credit card debt); the average credit card interest rate is much higher than those on most student loans
  • Having an emergency fund
  • Contributing to your 401(k) up to your employer’s maximum match
  • Contributing to other important financial goals, such as a down payment on a home, paying off a car loan or investing

Once you have all of that going for you, and there’s still breathing room left in your budget, you can consider focusing on your student debt.

Try to refinance your student loan (if you haven’t already), keep paying it down as much as you can – and don’t let it cause you more anxiety than it should.

Bottom line

If you’re in a good place financially and feel ready to try to pay off your student debt early, a cash back credit card can earn you rewards to help you do just that.

You can go with a card like the Laurel Road Student Loan Cashback, designed to reward you for paying down your student debt. However, for many cardholders, a regular cash back card with higher earning rates will be a better option.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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Credit Card Rate Report
Business
14.16%
Airline
15.46%
Cash Back
16.14%
Reward
15.91%
Student
16.78%

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