Sallie Mae student loan holders might want to consider applying for the provider’s Cash Back Visa card, since it could help them pay down their college debt.

Cardholders can use their rewards to reduce the total amount owed on the loan, but can’t apply them to the payments due. They’re eligible to apply the cash back to the loan once they’ve earned $25 in rewards.

“The cash-back rewards on this credit card can be applied to the student loan principal to help pay down the student loan,” Debby Hohler, a spokeswoman for Sallie Mae, says.

The feature is noteworthy, considering student-loan debt is at an all-time high. The Consumer Financial Protection Bureau announced last month private and federal student loan debt has collectively topped the $1 trillion mark.

It’s also noteworthy because the product provides decent earning potential. The card touts 5% cash back on gas, groceries and books and 1% on everyday purchases. These bonus categories admittedly are subject to earning caps. Cardholders can only earn 5% back on the first $500 they spend on gas and groceries each month.

Still, the limits are similar to the ones imposed by popular cash back cards with revolving categories.The Chase Freedom®, for instance, lets it cardholders earn 5% back on up to $1,500 in select purchases per quarter. The Discover More similarly offered 5% cash back on up to $1,500 in purchases in the first quarters of 2012, though the issuer did add an extra $300 in 5% earning potential for the second. (NOTE: Couldn’t find link to article on site. Please add if you like.)

Sallie Mae cash back cardholders also can earn the maximum cash back on the first $1000 they spend each month on books. There’s no total cap on how many base rewards a cardholder can earn and rewards do not expire.

Beyond the rewards program, the terms and conditions associated with the card are pretty favorable. It carries no annual fee and features a 11.99%, 13.99% or 15.99% annual percentage rate (APR) based on an applicant’s creditworthiness.

Sallie Mae is currently offering a $100 sign-on bonus to cardholders who spend $500 within the 90 days of opening the account. It’s also offering a 0% introductory APR on purchases for the first 12 months following the account being open.

Graduates only

The one big caveat is that prospective cardholders will need to apply for the card after graduation.

“The card is tailored to meet the financial needs of the college-educated consumer,” Debby Hohler, a spokeswoman for Sallie Mae, said. “It is being offered to Sallie Mae’s customers who are already out of school and parents with strong credit profiles.”

Of course, rewards cards generally aren’t a good fit for those new to the credit market. Students looking to build credit may be better off applying for a secured credit card. These cards require customers to put down a sum of money upfront to cover the line of credit and thereby provide less of an opportunity to overspend or default. Cardholders who use the card responsibly can graduate to a traditional line of credit and use both to build a credit profile worthy of a competitive rewards card.

Another option that might be of interest is the new checking account from SmarterBank, which is also designed to reduce student-debt levels.

If you’re interested in the Sallie Mae card, you can apply here.

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