What to know about student loan fees

Even after calculating your capital and interest charges, you may still have to pay additional fees on your student loans. Some student loans charge application or origination fees, and fees such as late fees or returned check fees can quickly become expensive. However, there are ways to avoid most student loan fees.

What are student loan fees?

Student loan fees are fees — either a percentage or a fixed dollar rate — for taking out the loan or not making the payments. Both private and federal student loans may charge fees, but they generally have different types of fees.

Some of the fees you might expect from a student loan include:

  • Creation costs: The origination fee is calculated as a percentage of your total loan amount, which is then subtracted from your loan before it is disbursed to you. All federal student loans charge an origination fee, which is currently 1.057% for unsubsidized and subsidized direct loans and 4.228% for Direct PLUS loans. Some private lenders may also charge origination fees.
  • Late charge: Late fees may be charged if you do not make a minimum payment by the due date. They are usually billed the day after payment is due, although some lenders have a grace period of up to 15 days. Sometimes it’s a percentage of the amount owed or a flat rate, but usually it’s between $5 and $25.
  • Returned Check Fee: Sometimes referred to as an “insufficient funds” fee or a “returned payment” fee, these fees occur if you don’t have enough money in your account to cover the payment or if your check has NSF. It can be a flat rate or a percentage of your loan amount, depending on the lender, but usually totals around $20.

All potential student loan fees may not be listed on a lender’s website, so you should review all the fine print before signing your loan agreement.

How student loan fees affect your payments

Loan fees can have a huge impact on how much you borrow, as well as how much you owe. For one thing, if you take out federal loans, the amount of money you get is not the amount you were approved for. For example, if you request $10,000 and are charged an origination fee of 4.228%, you will only receive $9,577.20, even though you still have to repay the full $10,000. In some circumstances, this may mean you will need to take out additional loans to cover the full cost of school if your original loan does not.

Late fees or insufficient funds charges may also accrue. If your lender charges $25 for a late payment, missing only four payments during the year will add $100 to your loan repayment. To avoid this, it’s a good idea to set up automatic payments so you don’t have to rely on calendar reminders.

Federal vs Private Student Loan Fees

There are a few big differences between federal and private student loan fees. More importantly, many private lenders have waived origination and application fees, while origination fees are charged on all federal loans. Some private lenders, like SoFi, have also eliminated other common fees like late fees.

At first glance, this may seem like a strong argument in favor of private lending over federal lending. However, fees don’t tell the whole story. Federal student loans come with a host of benefits and assistance that could help in an emergency, like the current payment pause as a result of the coronavirus pandemic. Private student lenders offered help with hardship in the first few months, but it was on a case-by-case basis and not everyone qualified. Most private lenders have reinstated payment requirements for borrowers regardless of income.

Even though federal student loans charge an origination fee to borrow the loan, federal interest rates are fixed and generally much lower than the rates offered by private lenders, especially for borrowers with poor credit scores. That’s why it’s almost always best to start your search with federal loans and move on to private lenders after you’ve exhausted those options.

The bottom line

It’s a good idea to include fees in your comparison between private and federal student loans, but there are other factors to consider as well.

Look to see the total cost of loans, including total interest, monthly payments, repayment plans and discount options. By taking proactive steps like setting up automatic payment, you may never have to worry about some of the most common loan fees.

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