Student Loan Fees: What to Know About Federal and Private Student Loans

Student Loan Fees: What to Know About Federal and Private Student Loans

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When you’re shopping around for student loans, you probably pay the most attention to lenders’ interest rates. But while the interest rate has a big impact on your repayment, there is another factor you should consider: student loan fees.

Both federal and private student loan lenders can charge different fees, including origination fees, late payment fees and returned check fees. Here’s what you need to know about the different fees you may encounter and what lenders typically charge:

Student loan fees: Federal student loans

While federal student loans are known for their relatively low interest rates and repayment benefits, they do charge a student loan origination fee.

Federal student loan origination fees

A student loan origination fee is a percentage of your loan amount that is proportionately deducted from the loan when your lender disburses the money. How large the origination fee is depends on what type of federal student loan you’re applying for.

  • Direct Subsidized and Unsubsidized Loans: 1.059%
  • Direct PLUS Loans (including Grad PLUS and Parent PLUS Loans):4.236%

How are loan origination fees calculated?

The origination fee is deducted from your loan before it’s disbursed, reducing how much of the loan you can actually use.

  • Direct Unsubsidized Loan: If you took out a Direct Unsubsidized Loan for $10,000, you’d pay $105.90 in origination fees. It would be taken from the loan amount before disbursement, so you’d receive $9,894.10 for your school tuition and fees.
  • PLUS Loans: PLUS Loans have a 4.236% origination fee. If you applied for a $10,000 Parent PLUS Loan, your origination fee would be $423.60. That amount would be deducted from the loan, so you’d only receive $9,576.40 for your education expenses.

When applying for a loan, it’s important to keep the origination fee in mind to ensure you take out enough money to cover your education costs. Otherwise, the origination fee could leave you several hundred dollars short.

Federal student loan late fees

Even though you may have federal student loans, you still have to make all of your payments on time. Otherwise, you could be subject to student loan late fees.

According to Federal Student Aid’s Master Promissory Note, the document all borrowers need to review and sign before they can access their loan, your loan servicer can start charging you late fees within 30 days after the payment is due. The late fee is $0.06 for each dollar of the late payment.

For example, let’s say your minimum monthly payment was $350. If you missed your payment by 30 days, your federal loan servicer would charge you a fee equal to 6% of the late payment amount. In this case, your fee would be $21.

Student loan fees: Private student loans

Private student loans are very different from federal loans, as there isn’t one standard set of fees. Each lender sets their own rules and fees, so it’s a good idea to shop around and pay attention to extra costs like origination fees, late fees and returned payment fees.

Private student loan origination fees

Unlike federal student loans, most private student loan lenders do not charge origination fees.

However, there are exceptions, particularly if you’re taking out specialty loans for higher education. For example, CommonBond charges a 2% origination fee on medical loans.

Private student loan late fees

While some lenders charge late fees if you miss a payment, not all private lenders do. Late payment policies vary widely from lender to lender. These are the late payment policies for the following lenders:

  • Citizens Bank: 5% of the payment amount.
  • CommonBond: 5% of the unpaid amount of the payment due or $10.00, whichever is less.
  • Discover: No late fees.
  • Education Loan Finance: 5% of the past due amount or $50, whichever is less.
  • Laurel Road: 5% of the late payment or $28, whichever is less.
  • Sallie Mae: 5% of the amount of the past due payment, up to a maximum of $25.
  • SoFi: No late fees.

Private student loan returned payment fees

When you take out a student loan, another common fee to keep in mind is returned payment fees. If a payment is returned to you because the account has insufficient funds or it’s been closed, the lender may charge you a penalty.

Returned payment fees can vary by lender. Here are some lenders’ returned payment policies:

  • Citizens Bank: $15 for each payment refused or returned
  • CommonBond: $5, subject to state law restrictions
  • Discover: No returned payment fee
  • Education Loan Finance: $30 for any payment that is returned unpaid for any reason
  • Laurel Road: Up to $20 for any payment that is returned to you
  • Sallie Mae: Up to $20
  • SoFi: No returned payment fee

Forbearance fees

Some private student loan lenders offer forbearance in cases of financial hardship. If you qualify, you can temporarily postpone your payments without becoming delinquent on your loan.

However, some lenders charge borrowers a flat fee to enter into forbearance. For example, Sallie Mae charges borrowers up to $50 per loan, up to a maximum of $150 per forbearance period.

Student loan fees FAQ

Are there refinance origination fees?

If you want to refinance your student loans, there’s good news: most refinancing lenders don’t charge a refinance origination fee. To find a lender, check out our list of the five best banks to refinance and consolidate student loans in 2020.

What are student loan forgiveness fees?

If you are pursuing student loan forgiveness, you should know that there aren’t fees to apply for loan forgiveness. However, you may owe taxes on the forgiven amount, depending on the type of forgiveness you’re eligible to receive.

  • Public Service Loan Forgiveness: If you qualify for Public Service Loan Forgiveness (PSLF), the forgiven loan balance is not taxable as income.
  • Income-driven repayment forgiveness: After 20 to 25 years of making payments under an income-driven repayment plan, you can qualify to have your remaining balance discharged. However, the forgiven amount is taxable as income.

What should I know about student loan default fees?

When it comes to student loan default fees, most federal and private loan companies will charge you their standard late fee. However, if you continue to miss payments and enter into default, they can pursue additional measures to recoup their money. They can send your account to collections or take you to court, damaging your credit. In the case of federal loans, they can even garnish your wages and seize your tax refund.

Casey Bond contributed to this report.

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