College is a time of discovery, but it also marks the beginning of your financial journey. As you settle into campus life, two key financial products from lenders like Discover might cross your path: a student credit card and a private student loan. While both can be essential tools, they serve fundamentally different purposes, and confusing them can lead to financial trouble.
This post will clearly break down the function, benefits, and drawbacks of Discover’s offerings in both categories, helping you decide which financial tool is the best fit for your current needs, and how to use them responsibly.
1. Discover Student Credit Cards: Your Credit-Building Tool
A student credit card, like the Discover it® Student Cash Back or Discover it® Student Chrome, is primarily a tool for building a positive credit history.
What It Is and How It Works
- Revolving Credit: It gives you a small credit limit to borrow money for short periods. You are expected to pay off the balance each month.
- The Key Goal: Its main purpose is to demonstrate to credit bureaus that you can handle borrowed money responsibly. Discover, for instance, reports your activity to the three major credit bureaus (Equifax, Experian, and TransUnion).
- Student-Friendly: These cards are typically designed for individuals with little to no credit history, often with no credit score requirement to apply. They usually come with $0 annual fees and lower credit limits to help limit risk.
Advantages for Students
- Builds Credit History: This is the most significant benefit. Consistent on-time payments contribute heavily to your future credit score (which is crucial for renting an apartment, getting a car loan, or even getting better job prospects later).
- Earn Rewards: Many Discover student cards offer valuable cash back rewards on everyday spending, like gas, restaurants, and rotating categories, plus an Unlimited Cashback Match™ at the end of your first year.
- Learning Opportunity: They offer a low-risk way to learn the mechanics of credit, utilising features like no penalty APR for the first late payment and free FICO® Credit Score access.
Responsible Usage Tips (Essential for Success)
- Pay in Full, On Time: Always pay your statement balance before the due date to avoid interest charges and establish a perfect payment history (35% of your credit score).
- Keep Utilisation Low: Try to use less than 30% (ideally less than 10%) of your credit limit. If your limit is $500, keep your balance under $150.
- Use for Necessities: Treat it like a debit card and only charge purchases you can immediately afford to pay off.
2. Discover Student Loans: Funding Your Education
A private student loan from Discover is a form of instalment credit specifically for covering the high costs of higher education.
What It Is and How It Works
- Instalment Credit: You receive a lump sum of money upfront (or in instalments) to pay for tuition, housing, and books. You then repay this fixed amount, plus interest, over a predetermined period (the “loan term”).
- The Key Goal: To bridge the gap between financial aid/savings and the total cost of attendance.
- Repayment Options: Discover Student Loans often offer flexible repayment choices, such as Deferred Payments (where you pay nothing while in school, but interest still accrues) or Fixed In-School Payments (small fixed payments to limit interest capitalisation).
A Crucial Distinction: Debt vs. Credit Building
Unlike a credit card, a student loan is debt; it’s meant to be a long-term financing solution for a massive expense (education). While responsible repayment of a student loan also builds your credit mix and history, its primary function is funding, not credit practice.
What to Consider when Looking for Student Private Loans
- Interest Rates: Private loan rates can be variable or fixed and are based on your or your cosigner’s creditworthiness. They can be higher than federal loans.
- Cosigner Often Required: Since students typically have limited income and credit history, a cosigner with good credit is usually needed to secure the loan and a lower interest rate.
- No Federal Benefits: Private loans, unlike federal loans, do not typically qualify for benefits like Income-Driven Repayment (IDR) plans or broad loan forgiveness programs.
The Verdict: Credit Card vs. Student Loan
| Feature | Student Credit Card | Private Student Loan |
| Primary Purpose | Build Credit History for the future. | Fund Education now. |
| Credit Type | Revolving Credit (pay and reuse). | Instalment Credit (fixed payments for a fixed amount). |
| Required to Pay Back | Only the amount you charge. | The entire principal amount, plus interest. |
| Risk Level | Low, if used responsibly and paid in full. | High—long-term debt that can be substantial. |
| Discover Example | Discover it® Student Cash Back | Discover Private Student Loan |
Which Should You Choose?
You need a Discover Student Credit Card if:
- You are looking for a risk-controlled way to start building a strong credit score.
- You can commit to paying off your balance in full every single month.
You need a Discover Student Loan if:
- You have exhausted all federal grant and loan options.
- You require funds to cover tuition and school-related expenses.
We will wrap up here
Both a student credit card and a student loan from a provider like Discover can be valuable assets, but they are not interchangeable.
Use your student loan as the necessary financial bridge to complete your education. At the same time, utilise your student credit card to build a foundation of responsible credit management. By understanding the difference between the two and approaching both with a commitment to responsible financial habits, you can set yourself up for long-term financial success well beyond graduation.
Disclaimer: This post provides general financial information and is not personalised advice. Always research the specific terms and conditions of any financial product before applying.