Death, taxes … and fees? These days, it can feel like added costs are an unavoidable part of life, whether you’re buying tickets on StubHub or Ubering Thai food to your doorstep. And if you’re a student loan borrower, you know the feeling all too well.
But there are several types of fees you could pay as a borrower, and you might not be aware of them all. Some fees are mandatory — but others are completely within your control. Here’s a look at the different student loan fees out there and what you can do to minimize them.
1. Federal student loan origination fees
Like most other types of loans, student loans granted by Uncle Sam come with origination fees. Paid up front by borrowers, these fees are meant to offset the costs associated with processing new loans.
As Zack Friedman, founder and CEO of personal finance website Make Lemonade, explained, “The fees are built into the total loan amount.” That means you won’t actually receive the full amount you borrowed. Instead, the origination fee, expressed as a percentage of the total loan amount, is taken off the top before the funds are disbursed to you.
Let’s look at an example.
Say you take out a $10,000 Subsidized Direct Stafford Loan. Even though you’re responsible for paying back the full $10,000, the amount you’ll receive is $9,893, thanks to the 1.07 percent origination fee.
If your educational costs amount to the full $10,000, you’ll need to account for that fee and tack on an additional $107 to the loan. What’s important to note is the fact that, in either case, you’ll end up paying interest on the origination fee as well. For some of the more expensive loans, such as Parent and Grad PLUS, that can add a significant amount to the total cost.
Current federal student loan origination fees
|October 1, 2017 – September 30, 2018||October 1, 2016 – September 30, 2017|
|Direct Stafford Loan – Subsidized (Undergraduate Students)||1.07%||1.07%|
|Direct Stafford Loan – Unsubsidized (Undergraduate Students)||1.066%||1.069%|
|Direct Stafford Loan – Unsubsidized (Graduate/Professional Students)||1.066%||1.069%|
|Direct Parent PLUS Loan||4.264%||4.276%|
|Direct Graduate/Professional PLUS Loan||4.264%||4.276%|
|HPSL (Health Professions Loan)||0.00%||0.00%|
Image credit: Iowa State University
There’s no avoiding origination fees on federal student loans, unfortunately. However, knowing what they are can help you plan your borrowing accordingly.
And Friedman noted that, unlike private student loans (more on those below), there are no additional servicing fees associated with federal student loans. That makes these loans an ideal first choice when you’re weighing borrowing options.
2. Private student loan origination fees
Private student loans are different from federal student loans. Since they’re offered by private institutions and not the federal government, it’s up to the individual lenders to decide the terms — including what types of fees they charge.
Most of the best private student loan companies don’t charge any origination fees. Even so, there are a lot of lenders out there, and your top choice might be one that does charge this fee.
Most private student loan companies base their fees, including origination fees, on the creditworthiness of applicants. Generally, better credit means lower fees — so if you do borrow from a lender that charges origination fees, at least be sure your credit is in good shape. (It’ll help you get a low interest rate too.)
Ideally, however, you should avoid origination fees because they increase the total cost of your loan.
If you’re able to get a low interest rate in addition to no origination fee, you might be able to finance your college education for less than you could with a federal student loan. There are fewer protections for private student loan borrowers, though, so weigh the trade-offs carefully.
3. Collections fees
As long as you make your student loan payments on time, you’ve got nothing to worry about. But if you fall behind and enter default, a serious knock to your credit score won’t be the only cost.
When you’re more than 270 days late on student loan payments, you enter default. Your entire balance becomes due at this point, and it’s often sent to collections. And because private collections agencies charge fees, the loan servicer will be sure to pass that cost on to you.
In fact, collections fees can total 18 to 40 percent of the balance. For a $10,000 loan in default, that could equate to a $4,000 fee. Yikes.
What’s more, an Obama-era protection that allowed collections fees to be waived if the default was resolved quickly was recently rolled back. Needless to say, it’s a good idea to keep your loans in good standing and avoid the financial headache of collections fees and damaged credit.
4. Late payment fees
You might not be anywhere close to defaulting, but missing a payment here and there can still cost you a hefty chunk of change. Just about all federal and private lenders charge student loan late fees.
Again, the exact fee will vary depending on the particular lender. According to Credit.com, there’s usually a grace period of 10 to 15 days. After that, late fees can be as high as $15 or 5 percent of the payment due. Student loan late fees are just one more reason to stay on top of those payments.
5. Other private student loan fees
As mentioned, private lenders can charge fees for just about anything they please. Some of the fees borrowers have come across include charges for arranging deferment or forbearance, providing copies of loan payment histories, providing loan verifications, returned payments, expedited payments, and sending documents by express delivery or fax.
According to Friedman, it’s important to “ask the lender for a written list of the fees associated with the prospective student loans so [you] can compare fees across lenders.” Comparing fees is an important part of shopping around for the best student loan deal.
Friedman also noted that although origination fees are fairly common, legitimate private student loan companies will not add on exorbitant fees. So if you end up staring down a long, pricey fee schedule, it’s probably a sign you could do better.
Avoiding student loan fees
Although some fees are unavoidable, there are steps you can take to minimize the fees you pay on student loans.
“Before borrowing student loans, borrowers should maximize their scholarships and grants,” said Friedman. “Then, borrowers should maximize their federal student loans before borrowing private student loans.”
The more you do to avoid unnecessary fees, the cheaper your debt is going to be. And keeping your student loan costs at a minimum is certain to pay off after graduation.
Need a student loan?Here are our top student loan lenders of 2019!
|2 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with an 8-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7% variable Annual Percentage Rate (“APR”): 96 monthly payments of $179.28 while in the repayment period, for a total amount of payments of $17,211.20. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 5/22/2019. Variable interest rates may increase after consummation.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
4 Important Disclosures for Discover.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.99% – 11.32%2||Undergraduate, Graduate, and Parents|
|4.50% – 11.35%*,3||Undergraduate and Graduate|
|4.84% – 13.49%4||Undergraduate and Graduate|
|4.25% – 11.30%5||Undergraduate and Graduate|
|4.50% – 9.47%6||Undergraduate and Graduate|
|3.74% – 9.72%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.32%8||Undergraduate, Graduate, and Parents|