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Student loan giant Sallie Mae SLM, +3.26% is now offering three credit cards designed for the collegiate set — including one that lets people use their cash-back rewards to pay off student loans.
But for some, the smarter move could be to sign up for other credit-building cards on the market.
The three credit cards — Sallie Mae Ignite, Sallie Mae Accelerate and Sallie Mae evolve — are all structured similarly. Each has a base rate for cash-back rewards, and then an extra 25% bonus on rewards if users fulfill certain requirements. Here’s how they break down:
• The Sallie Mae Accelerate card offers 1.25% back on all purchases, but people can get an extra 25% bonus on the rewards if the rewards are used to pay down any federal or private student loan. This can be done through Sallie Mae’s mobile app.
• The Sallie Mae Ignite card, which is intended to help college students build credit, pays 1% cash back on all purchases. Card holders can then unlock a 25% bonus on rewards earned on all future purchases if they make six consecutive months of on-time payments.
• Finally, the Sallie Mae Evolve card offers 1.25% back on all purchases, but users will receive a 25% bonus on rewards earned for purchases made in their top two spending categories each business cycle automatically.
‘Unlimited 1% cash back is similar to a handful of other student rewards cards.’
“[W[hile others may add a ‘student’ label to an existing card, we co-created a true student card — Sallie Mae Ignite — with students, parents, and recent graduates and are specifically designed to promote financial responsibility,” Rick Castellano, Sallie Mae’s vice president of corporate communications, told MarketWatch. “Our priority is to help students build credit responsibly and reward them for it.”
Read more: Wells Fargo and other banks charged college students $27 million in fees, buried CFPB report reveals
The cards have no annual fees, but do charge fees for late payments and foreign transactions. Each card has a 0% annual percentage rate period — 6 months for the Ignite and 12 months for the Accelerate and Evolve. The interest rate then moves to a variable rate of between 14.99% and 24.99%. All of the cards come with cell-phone protection if the card holder pays their monthly wireless bill through their Sallie Mae card.
How Sallie Mae’s cards compare to other products geared toward college students
“Unlimited 1% cash back is similar to a handful of other student rewards cards,” said Nathan Grant, credit industry analyst at Credit Card Insider.
For instance, the Journey Student Rewards card from Capital One COF, +2.06% pays 1% back on all purchases and then an additional 0.25% back for making on-time payments.
Other student cards are better for people who spend a lot in certain categories. The Discover it Student Cash Back card DFS, +1.12% offers 5% back up to $1,500 in spending each quarter in categories that rotate each month — and people who maintain a 3.0 grade point average can get an additional $20 statement credit each year. Meanwhile, the Discover it Student chrome offers 2% back on purchases at restaurants and gas stations.
Meanwhile, students with good enough credit to apply for cards that aren’t geared toward students could be better off going that route. “For students who can qualify for a flat-rate card that comes with 1.5% or 2% cash back on every purchase, like Citi Double Cash (2%) C, +2.16% or Chase Freedom Unlimited (1.5%), JPM, +1.69% these other cards could earn them more cash back over time,” said Kimberly Palmer, personal finance expert at NerdWallet.
Also see: Wells Fargo and other banks paid colleges so they could market accounts to students, putting them at risk of high fees
As for making student-loan payments with rewards cash, credit-card experts stressed that this benefit isn’t necessarily all it’s cracked up to be. Borrowers who graduate with debt owe $30,000 on average. Making a significant dent in that with 1.25% cashback rewards would be challenging.
“Any time you’re talking about helping people or rewarding people for paying down their student loans, it’s going to catch their attention,” said Matt Schulz, chief industry analyst at CompareCards. “I’m not sure it’s going to move the needle much because the cash back return on these isn’t going to be huge.”
‘If you’re just getting started with a credit card, you shouldn’t really worry about rewards.’
What college students should consider when signing up for a credit card
Over a decade ago, signing up for a credit card as a college student could be a dicey proposition because of problematic marketing practices on the parts of companies offering credit cards. The CARD Act of 2009 sharply reformed how companies could market cards to students.
“The CARD Act made it harder to get a credit card before age 21, and in some cases even beyond,” said Ted Rossman, industry analyst for CreditCards.com “I hear of people in their mid-20s who get declined for credit cards because they don’t have enough of a credit history.”
Building credit early is important, because it can make it easier later in life when you try to apply for other loans, including home mortgages. But it’s important to have the right priorities in mind when signing up for a credit card.
“It’s the best time it’s ever been for earning rewards on student cards — virtually all of the major players offer some sort of student rewards card,” Schulz said. “But if you’re just getting started with a credit card, you shouldn’t really worry about rewards.”
Instead, experts recommended paying attention to other factors: Interest rates, fees and the balance accrued. “Credit cards are serious financial tools that can help students build credit history if used responsibly, or can be a gateway to debt if used irresponsibly,” Grant said.
For those struggling to get their own credit cards, a better option might be for a parent to add you as an authorized user on their card or to get a secured credit card that can prevent you from amassing a massive amount of debt. Both will aid in building one’s credit score, while providing a life raft if the card holder falls behind on payments.
Read more: America is one step closer to a government-backed account and debit card for college students