Paying Your Credit Cards With Student Loans

Student loans are supposed to be earmarked for academics, but can they also pay your Visa bill (Stock Quote: V) ? The answer is yes.

After covering $2,500 each semester for tuition at Baruch College in New York City, Jorge Bautista, 26, uses about $3,000 left over from his student loan to buy food and pay off some of his $10,000 in credit card debt.

It is no surprise Bautista is an accounting major: One of his credit cards has a 31% APR. The interest rate on Bautista’s $10,500-per-year federal Stafford loan is 6%.

And his payment strategy is perfectly legal, according to experts.

While federal student loans are limited to the cost of attendance, students get to use the money for living expenses once tuition and fees are taken care of, and college financial aid administrators have little oversight of how that money is spent, says Mark Kantrowitz, publisher of the financial aid site Finaid.org.

Generally what happens is that the proceeds from a student’s loan are sent to their school, and any money beyond tuition and fees (and room and board, if the student lives on campus) is refunded to the student.

“While that money is supposed to be used to further their education, there really aren’t any requirements or controls that prevent a student from using their aid to buy a music CD, for example,” says Kantrowitz. “So long as the student is actually attending classes and actually making progress toward a degree, there is little that can be done to deny those students of those funds.”

The definition of “cost of attendance” is pretty flexible and includes books, supplies, transportation, computers and even child care.

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