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Student loans are not free money. On the contrary, you’ll have to pay back the full amount you borrow, plus interest that accrues.In addition to interest charges, you may also have to pay student loan fees, which could include an origination fee, late payment fee, or other penalty. Fees will vary by lender and loan type, but it’s worth keeping an eye out for any extra costs that could make your student loan more expensive.
What Is a Student Loan Fee?
A student loan fee is an expense that’s tacked on to your student loan. There are various types of fees, but not all of them apply to every loan type or situation. All federal student loans charge origination fees, for example, while many private student loans don’t. Some fees are automatic, while others are only levied if you fall behind on your bills. For instance, you could get charged a fee if your payment is late or your loan goes into collections.
How Do Student Loan Fees Work?
Student loan fees may be a flat fee or a percentage of your loan amount. If your loan comes with an origination fee, for instance, it’s usually a percentage of your loan amount that’s subtracted from your loan proceeds. If you borrow a $10,000 student loan with a 1.057% origination fee, for instance, you’ll only receive $9,843 since the lender will take its fee from your loan amount upfront. A late payment fee, on the other hand, could be a flat fee of $15 or so. You’ll be expected to pay this fee along with your required student loan payment.
Types of Student Loan Fees
Here’s a closer look at the various types of student loan fees you might encounter.
Origination fees
Some lenders charge origination fees on student loans. A student loan origination fee is the cost of processing your loan, and it’s typically a percentage of your loan amount. As mentioned, this amount may be subtracted from your loan proceeds upfront, so you’ll receive a slightly smaller amount than what you requested. Federal student loans, which you can access after submitting the FAFSA, come with origination fees. Here are the current fees:
Direct subsidized and unsubsidized loans: 1.057%
PLUS loans: 4.228%
Some private lenders charge origination fees on private student loans, whereas others do not. If you’re an undergraduate student, Direct subsidized and unsubsidized loans are still probably superior to private loans thanks to their easy borrowing requirements and low fixed interest rates. If you’re a graduate student or parent borrower, however, it could be worth comparing private student loans with PLUS loans to see which would be the more affordable option. While private student loans don’t have the same number of protections as federal ones, they could be less costly than PLUS loans, especially for creditworthy borrowers.
Late fees
When you start paying back your loans for school, you’re expected to make payments by the due date each month. If you fall behind, you could be subject to a late fee. Most private and federal student loans charge fees for late payments. This late fee may be a flat fee, such as $25, or a percentage of your payment amount, such as 6%. It will likely be tacked onto your payment, which you’ll be expected to pay right away. You can review your loan agreement to see how much your lender charges. Some lenders give you a certain number of days to get your payment in before it levies this late fee. For instance, you might have a grace period of 15 or 30 days.
Collections fees
If you default on your student loans, your debt could go into collections. Default occurs after 270 days of missed payments on federal student loans. It can occur even sooner on private student loans. Once your loan goes into collections, you could see fees that add up to 16% or more of your monthly payments. Not only will your debt get a lot more expensive, but the collections agency may demand that you pay back the full amount you owe immediately, including your principal balance and the interest that has accrued. Your credit score will also be severely damaged. And if you default on federal student loans, the government could garnish your wages, tax refund, and Social Security benefits. If you’ve defaulted on your federal student loans, you have options for getting your accounts back into good standing. Loan consolidation and rehabilitation are two options for getting out of default.
Returned payment fees
If you make a student loan payment but you have insufficient funds in your account, your lender may charge you a returned payment or insufficient funds fee. Both federal and private student loans typically charge this fee. It might be a percentage of your payment amount or a flat fee around $15 to $30.
Deferment or forbearance fees
Deferment and forbearance allow you to postpone payments if you run into financial hardship, go back to school, or have another qualifying reason. If you have federal student loans, deferment and forbearance don’t cost anything — you just need approval from your loan servicer. The rules can be different for federal vs. private student loans, though. Some private lenders may levy a fee for deferred student loans. The rules will vary by lender, so check with yours to see if it offers this option and what, if anything, it will charge to enter one of these programs. Keep in mind that interest may continue to accrue if your student loans are in forbearance or deferment, causing your balance to grow. Recommended: Bank Account Levies Explained
What Student Loan Fees Can Cost You
Student loan fees can add to your costs of borrowing. Fortunately, you can avoid most fees as long as you make your payments on time and don’t default on your loans. Before signing any loan agreement, read over your promissory note carefully to see if you’ve responsible for any fees. If you have to pay an origination fee, take this into account when determining how much you need to borrow. Since this fee may be subtracted from your loan proceeds upfront, you may need to request a slightly higher amount to get the full loan you need.
Do Private Student Loans Have Fees?
The fees, rates, and terms on private student loans vary from lender to lender. There are several private lenders that don’t charge origination fees. Some lenders like SoFi don’t charge any fees, including late fees. If you’re shopping around for a private student loan, compare the annual percentage rate (APR), rather than interest rate alone. APR includes both interest and fees, so it allows you to compare multiple loans on an apples-to-apples basis.
The Takeaway
Student loan fees can add to your costs of borrowing, so it’s important to understand what a lender charges before you borrow. All federal loans come with origination fees, for instance, but not all private student loans do. As long as you pay your loan back on time, you can avoid most fees. You also don’t have to worry about prepaying your loan ahead of schedule, since reputable lenders don’t charge a penalty for prepayment. If you’re interested in refinancing your student loans for better rates, Lantern can help you compare student loan rates from refinancing lenders that don’t charge origination fees, prepayment penalties, or other fees.
Frequently Asked Questions
What are student loan fees?
What is a student loan origination fee?
How can I avoid student loan fees?
Photo credit: iStock/Jinda Noipho
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About the Author
Rebecca Safier
Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
