Student loan borrowers may not realize it, but student loans can come with significant fees in addition to loan interest. In fact, Uncle Sam has pocketed $8.3 billion in loan origination fees alone since 2013, according to the National Association of Student Financial Aid Administrators. Here’s a rundown on fees from student loans and fees from student loan refinancing.
Student Loan Fees vs. Student Loan Interest
Student loan fees are charged separately than interest, which is the price you pay, as expressed as a percentage of a student loan, that the borrower must pay. Student loan interest is calculated as a percentage of the principal balance of the loan and is included in any student loan payment you make.
Student loan fees are financial costs charged by lenders to offset the processing and management of student loans. They come attached to regular student loans, both federal and private loans, and from student loan refinancing deals, as well.
Unlike interest rates, origination loan fees aren’t included in your regular loan payments. Instead, they’re deducted from your student loan disbursements (i.e., when you actually receive the student loan.)
Let’s say your student loan is $10,000 and includes fees amounting to 5% of the entire student loan. If you receive two disbursements of $5,000 apiece, $250 will be deducted from each $5,000 disbursement and is pocketed by the lender, leaving you with a total net loan amount of $9,500. But you still need to pay back that original $10,000.
Loan Origination Fees for Federal Loans
A student loan origination fee is an upfront charge paid to the lender. It covers the cost of funding, administering and maintaining the loan. Here are the student loan origination fees for federally funded loans, subsidized and unsubsidized in the period between October 1, 2019 and September 30, 2020. The loan fees will drop to 1.057% and 4.228% on October 1, 2020. Note that origination fees are the only fee associated with federal student loans.
- Direct Subsidized Student Loans And Direct Unsubsidized Loans – 1.059% Loan Origination Fee
- Direct Plus Loans – 4.236% Loan Origination Fee
- Direct Stafford Loan – Subsidized Undergraduate Students – 1.059% loan origination fee
- Direct Stafford Loan – Unsubsidized Graduate/Professional Students – 1.059%
- Direct Parent PLUS Loan – 4.236% loan origination fee
- Direct Graduate/Professional PLUS Loan – 4.236% loan origination fee
- HPSL (Health Professions Loan) – 0.00% loan origination fee
Private Student Loan Fees
Origination Fees: Most quality private student loans don’t have origination fees. Some private student loan lenders may charge a loan origination fee for “specialty” loans. CommonBond, for example, charges a 2.00% loan origination fees for medical school, dental school and MBA-level graduate schools. When a private student loan lender does charge a loan origination fee, expect to pay between 1% and 6%.
Student Loan Application Fees: Private lenders often charge a modest loan application fee. The fee is flat, meaning it’s only paid once. The fees vary and are non-refundable. You have to pay the fee whether your loan is approved or not. The good news is that in recent years, private lenders have curbed the use of student loan application fees.
Early Payment Penalties: There was once a time when you would get slammed with a fee if your pay your student loans off early. Lenders are actually now banned from charging additional fees when a borrower makes extra payments on their student loans or pays off the student loan balance early. But there are additional steps to ensure that student loan prepayments are applied to the principal balance of the loan with the highest interest rate.
Late Payment Fees. Private student loan lenders may charge a late payment fee of about 5% if the borrower is late paying their student loan bills (typically after the monthly grace period expires.) Remember that if your 30-days-or-more late paying your student loan bill, the lender can report the late payment to credit scoring agencies, which lowers your credit score. Keep in mind there are many ways to avoid late payments on student loans.
Payment Return Fees: If you pay a student loan and its returned for insufficient funds (i.e., you “bounced” a check, for example) your lender may charge you a returned payment fee, either as a flat rate or as a percentage of your total loan amount. If the payment is returned and the monthly loan grace period expires, you may wind up paying both the returned payment fee and a late payment fee.
Loan Collection Fees: In this scenario, a collections fee is triggered if your loan goes into collection status after months of non-payment – usually after 270 days for federal student loans (collection fee timetables for private student loans vary.) Borrower need to be careful in avoiding collections fees, as they are at the top of the list for most expensive student loan fees. Penalties for non-payment can be as high as 40% of the total loan amount.
Forbearance and Deferment Fees: If you’re struggling financially and need to suspend payments via loan deferment or forbearance, you’ll likely face a fee for having your payments suspended. The fee will be charged either as a flat fee or a monthly fee for the duration of your loan suspension.
Refinancing fees: In general, there are no origination fees linked to student loan refinancing loans with quality lenders. There will be fees and charges for late payments, early payments, and loan deferment and forbearance deals with a refinanced student loan. Low-quality student loan lenders may charge an origination fee to refinance, but smart loan shoppers will avoid those lenders and only work with reputable student loan lenders who don’t charge refinancing fees.
Keep in mind refinancing federal student loans means a loss in many benefits – income-driven repayment plans, any federal forgiveness programs, generous deferment options, and more.
Get Educated on Student Loan Fees
Your best bet to avoid student loan fees of any stripe is to ask ahead of time for a list of fees you’ll be paying as a student loan borrower. Some borrowers may tack on extra fees and hide the practice in the loan agreement’s fine print.
Asking ahead of time will both avoid any “surprise” fees you didn’t know about and prepare you for the extra financial charges you’ll face as a student loan borrower.