When you graduate law school with loans, your monthly loan payment becomes one of the many bills you have to pay. Another major expense is your credit card bill. These days it seems everyone pays for most things on their credit cards. Checks are barely used and paying in cash is quickly becoming a thing of the past. There are many reasons to use a credit card. It is more convenient, easier to use, and often will come with some type of reward like cash back or airline miles. The company Laurel Road is offering a new type of benefit through a credit card that offers 2% cash back¹ toward your student loans.
How does the card actually work?
Now anyone with student loans would likely be intrigued by the card, But as with any financial deal, many will likely ask, “what is the catch?” It is always a good idea to look at any potential fees along with specific benefits that you receive. For the Laurel Road Student Loan Cashback credit card, there is no annual fee and no fee for foreign transactions. If you have an eligible student loan, you can put your 2% cash back reward toward paying back your loans.
The biggest caveat is that your student loan needs to qualify. Your eligibility depends on whether Laurel Road has a relationship with whoever administers your loan, so it’s a bit hard to know if your loan qualifies before you apply. However, Laurel Road covers 95% of all eligible servicers; a list of servicers is available on the Laurel Road site.
To enroll, you start as you would for any card. You apply on their site and put in the financial information that any credit card company would ask for. Assuming your loan provider qualifies, the cash back can work on any type of higher education loan. So you could even use it during law school and have it go towards paying off the previous year’s loans.
What are the main benefits?
Speaking broadly, the main benefit, as with most credit cards, is getting cash back. You likely spend a lot of money with your card, so you may as well get some money back while you do this spending. An added benefit of this card is that it effortlessly pays off your loans. There are dozens of cards you could enroll in that would give you cash back, and you could go through the extra step of applying that cash to your loan payments. But the cash back reward might not prove as beneficial as this card for a few reasons. First, you likely have a busy life, so you might easily forget to go into your account, get the cash back and then apply it to the loan.
Second, when you are receiving plain cash back, you may have the goal of applying it to your loan, but it might not always work out that way. You could see that few hundred dollars in your account and decide to use it on a plane ticket this month instead of your loans. That plane ticket may be for something really important, so your decision may be valid. But when the cash back reward is redeemed for your loan, you do not have to make that decision. Streamlining and automation are your friends.
Now you may think, “I have hundreds of thousands of dollars in student debt, why should I care about getting $100 or $200 a month going towards loans.” Well no matter what career path you choose out of law school, you will want options to pay off your loans as quickly as possible, or at least in a manner that does not derail your quality of life. The Laurel Road card can help you. It will not solely pay off all of your loans, but it could save you a few thousand dollars each year. With the saved interest in paying off even a few extra thousand in your loans now, it can be a great investment.
Additionally, it is money you’re getting back based on the purchases you’re already making. You are going to be paying off part of your loans by doing things like going to the grocery store, going out with your friends, and paying the internet bill. These are all things you would do with or without your card, you might as well get a financial benefit that goes towards your loans.
How does it stack up against competitors?
The idea behind this card is extremely new, so it only has a few direct competitors. First, the SoFi Credit Card offers 2% cash back for loans as well. But it needs to be a SoFi student loan, so if you do not have a loan from SoFi, it is not worth considering. Sallie Mae’s Accelerate card offers 2% cash back if you directly apply it to any student loan. Like the Laurel Road card, the Accelerate card also has no annual fee.
The main other alternative is the cash back you get from cards in general. Just about all consumer sites will say that you should receive at least 1.5% cash back on your card. So with the Laurel Road credit card you are doing better than the average cash back. However, many cards offer higher cash back on specific areas or in terms of rewards. Airline credit cards might give you miles that are worth more than 2% cash back. Some cards give you as much as 6% cash back on either a particular amount, such as the first $500 that you spend, or categories such as dining, travel, or purchases at a particular store.
When comparing cash back options, there is not an automatic answer on which is better. You have to look at your specific circumstances and see what makes sense for you. If you have to travel a bunch (on your own dime), then a miles card may make more sense. If you exclusively shop at one store, then a cash back reward for there may be more lucrative.
But as noted above, in terms of paying off your loans, there is a strong chance that any other cash back option will not go as far in terms of paying off your loans because there will be behavioral hurdles in the way of you using your cash back for paying off loans. While you of course have other expenses, with the size and interest of your student loans, every bit that you can pay off quicker, may prove financially lucrative.
If you go with another option, such as miles, work out a plan to manage them to your benefit.
What else to consider?
As mentioned before, no credit card is going to solely pay off your student loans. But when you are looking to alleviate your loans, you will likely need a multi-tier approach. Another component to the strategy, that involves credit cards, is automating all of your payments. It will make you financially efficient. With all expenses you should keep yourself on a relatively careful budget to ensure that you are sticking to your financial goals. Though all of this may seem cumbersome or not worth the effort, small considerations like the ones discussed in this piece can go a long way in paying off your loans.
1. You will earn 2.0% in Cashback Rewards for each $1 spent on eligible Purchases if you redeem your Cashback Rewards towards your Student Loan with an eligible servicer. This equates to $0.02 in Cashback Rewards, for each $1 spent. For example, if you spend $100, you will earn $2.00 in Student Loan Credit. You will earn 1.0% in Cashback Rewards for each $1 spent on eligible Purchases if redeemed for a statement credit. This equates to $0.01 in Cashback Rewards, for each $1 spent. For example, if you spend $100, you will earn $1.00 in Cashback Rewards. Cashback is awarded based on eligible credit card purchases excluding transactions such as cash advances of any type, balance transfers, convenience check transactions, overdraft protection transfers and quasi-cash transactions
Todd Carney is a graduate of Harvard Law School. He holds a Bachelor’s degree in Political Science and Public Communications. He has also worked in digital media in New York City and Washington D.C. The views in his pieces are his alone and do not reflect the views of his employer.