What is Student Loan Origination Fee? What you Need to Know

What is Student Loan Origination Fee? Getting to know your origination fee isn’t a bad idea at all. These are some of the numerous questions most borrowers ask themselves whenever they want to apply for a student loan. So I will be helping you with that. Read on to get your details in full.

What is Student Loan Origination Fee? What you Need to Know

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There’s a hidden tax on student loans. At least, that’s the case several U.S. Senators are making.

They’ve put forth a new bill, the Student Loan Tax Elimination Act, that if passed would get rid of student loan origination fees charged by the federal government.

Unfortunately, the Student Loan Tax Elimination has yet to go anywhere—which means student loan origination fees are unlikely to go anywhere, either. The question now is what is Student Loan Origination Fee 2020.

What is Student Loan Origination Fee?

A student loan origination fee is a cost a borrower might be charged when they first originate or take out a student loan. Typically, a student loan origination fee is added to cover the administrative costs of processing and funding the loan.

Not all student loans have origination fees, but every federal student loan does. Students will face an origination fee, called a loan fee, every time they borrow through the Federal Direct Loan program.

Whether private lenders charge an origination fee can vary, but this fee is less common on private student loans. None of the lenders among our picks for the best private student loans, for example, lists an origination fee.

Federal Student Loan Origination Fee and Interest Rates 2021

Federal Student Loan Origination Fee and Interest Rates 2021

Interest rates are amounts charged to a borrower for the privilege of using the lender’s money. The interest is calculated as a percentage of the principal balance of the loan.

While origination fees are fees assessed by lenders to help offset the cost of processing the loan. The origination fee is assessed on each loan disbursement.

Origination Fee

Most federal student loans have loan fees that are a percentage of the total loan amount. The loan fee is deducted proportionately from each loan disbursement you receive while enrolled in school.

This means the money you receive will be less than the amount you actually borrow. You’re responsible for repaying the entire amount you borrowed and not just the amount you received.

Loan TypeFirst Disbursement DateLoan Fee
Direct Subsidized Loans and Direct Unsubsidized LoansOn or after 10/1/19 and before 10/1/201.059%
On or after 10/1/18 and before 10/1/191.062%
Direct PLUS LoansOn or after 10/1/19 and before 10/1/204.236%
On or after 10/1/18 and before 10/1/194.248%

Interest Rate

The interest rate varies depending on the loan type and (for most types of federal student loans) the first disbursement date of the loan.

The table below provides interest rates for Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans first disbursed on or after July 1, 2019, and before July 1, 2020.

Interest Rates for Direct Loans First Disbursed on or After July 1, 2019, and Before July 1, 2020
Loan TypeBorrower TypeFixed Interest Rate
Direct Subsidized Loans and Direct Unsubsidized LoansUndergraduate4.53%
Direct Unsubsidized LoansGraduate or Professional6.08%
Direct PLUS LoansParents and Graduate or Professional Students7.08%

Other Federal Student Loan Origination Fee and Interest Rate

Other Federal Student Loan Origination Fee and Interest Rate

The following table provides interest rates for Direct Loans and Federal Family Education Loan (FFEL) Program loans first disbursed on or after July 1, 2006, and before July 1, 2019.

Perkins Loans (regardless of the first disbursement date) have a fixed interest rate of 5%.

Loan TypeBorrower TypeFirst Disbursement DateFixed Interest Rate
 

 

 

 

 

 

Direct Subsidized Loans

Subsidized Federal Stafford Loans 1

 

 

 

 

 

 

Undergraduate

7/1/18–6/30/195.05%
7/1/17–6/30/184.45%
7/1/16–6/30/173.76%
7/1/15–6/30/164.29%
7/1/14–6/30/154.66%
7/1/13–6/30/143.86%
7/1/11–6/30/133.4%
7/1/10–6/30/114.5%
7/1/09–6/30/105.6%
7/1/08–6/30/096.0%
7/1/06–6/30/086.8%
Direct Subsidized Loans

 

Subsidized Federal Stafford Loans 1

Graduate or Professional 27/1/06–6/30/126.8%
 

 

 

Direct Unsubsidized Loans

Unubsidized Federal Stafford Loans 1

Undergraduate7/1/18–6/30/195.05%
7/1/17–6/30/184.45%
7/1/16–6/30/173.76%
7/1/15–6/30/164.29%
7/1/14–6/30/154.66%
7/1/13–6/30/143.86%
7/1/06–6/30/136.8%
 

 

 

Direct Unsubsidized Loans

Unubsidized Federal Stafford Loans 1

Graduate or Professional7/1/18–6/30/196.6%
7/1/17–6/30/186%
7/1/16–6/30/175.31%
7/1/15–6/30/165.84%
7/1/14–6/30/156.21%
7/1/13–6/30/145.41%
7/1/06–6/30/136.8%
 

 

 

 

Direct PLUS Loans

 

Parents and Graduate or Professional7/1/18–6/30/197.6%
7/1/17–6/30/187%
7/1/16–6/30/176.31%
7/1/15–6/30/166.84%
7/1/14–6/30/157.21%
7/1/13–6/30/146.41%
7/1/06–6/30/137.9%
Federal PLUS Loans 1Parents and Graduate or Professional7/1/06–6/30/108.5%

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FAQ’s

1. How does an origination fee affect your debt?

A loan fee or origination fee for student loans comes out of your disbursement before you see it.

2. Do grad school programs disclose origination fees to students?

Most programs that give a detailed cost of attendance estimate will put a number on there for loan fees. However, I’ve found those numbers to be frequently wrong, incomplete, or totally missing.

3. How much do origination fees add to your loan balance?

This origination fee would go slightly up or down depending on Department of Education rules each year, but it would not change much under the current Higher Education Act.

4. How do I plan for the origination fee?

Learning about student loan origination fees can help you plan for these costs. Here are a few tips you can follow to manage these fees.

5. Why do federal student loans have origination fees at all?

In short, this is to cover the administrative and other expenses related to the federal student loan program. In other words, the fee helps to pay for the employees who process your loan’s paperwork, any office supplies used in the processing of your loan, and other such expenses.

Summary

In conclusion knowing what loan fees will cost you can be complicated, but if you leave school with a typical professional degree balance, you probably will get charged a new car’s worth. Very few institutions warn you adequately about this.

In rare cases, it can make sense to take out private loans instead of Grad PLUS. Private loans usually have lower student loan origination fees and lower interest rates than PLUS loans.

However, you should never borrow anything but federal loans even at higher rates if your plan is to utilize income-driven repayment.

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