When you're shopping around for student loans to finance your education, the two numbers you probably focus on the most are the amount you'll borrow and the interest rate.
That makes sense, as those are the two most important parts of your loan. But they're not the only details you need to pay attention to. When you get a student loan, the lender may also charge different types of student loan fees that can either cost you more money or reduce the amount of money you end up getting when your loan is issued.
Because the student loan industry is competitive, many of the best student loan providers have minimized their fees to bring in more business. Still, you should know about the potential student loan fees that are out there to avoid getting caught by surprise.
1. Application fees
Lenders may charge you a fee when you apply for your student loan. This is most often a flat fee that the lender charges for processing the application. Application fees are usually nonrefundable, and you have to pay them whether your loan application is approved or denied.
Fortunately, application fees are becoming less and less common. A large portion of private lenders have gotten rid of them entirely, so you can easily find lenders that don't charge them.
2. Origination/disbursement fees
One fee that takes many students by surprise is the origination fee, which may also be referred to as a "disbursement fee."
The origination fee is what the lender charges to issue your loan, and it's a percentage of your total loan amount. What makes the origination fee confusing to some students is that you don't pay it to the lender; rather, the lender deducts the fee from your loan before issuing it to you.
For example, let's say you're taking out a student loan for $20,000, and it has an origination fee of 3%. When your lender issues the loan to you, it will first take its 3% cut from that $20,000 loan, leaving you with $19,400. However, you'd be responsible for repaying the entire loan amount -- in this example, $20,000 -- not the amount minus the origination fee.
There can be origination fees for both federal and private student loans. With federal student loans, the origination fee is based on the type of loan you choose and when your loan is disbursed. For loans that were first disbursed between Oct. 1, 2018 and Oct. 1, 2019, origination fees are:
- 1.062% for direct subsidized loans and direct unsubsidized loans
- 4.248% for direct PLUS loans
Private lenders set their own origination fees, and these typically run anywhere from 1% to 6%. But once again, this is a fee that quite a few private lenders have done away with by now. If you're shopping for private loans and a lender charges a large origination fee, you could likely get a better deal by looking elsewhere.
3. Late payment fees
If you miss the due date for your student loan payment, then your lender can hit you with a late fee. Unlike late fees on credit cards, late fees on student loans are usually a percentage of your minimum payment amount.
Here's an example: Your minimum payment on your student loan is $500, and the lender charges a 5% late fee. Should you miss a payment, then you'll need to pay $525 instead of $500.
Different lenders have varying definitions of "late." Technically, you're late as soon as you miss your payment's due date, but some lenders have a grace period, such as 15 days. If you do end up missing a payment and getting charged a late fee, you should call your lender and ask if they'll waive it. Many will cut you some slack the first time around.
The most important thing to remember if you miss a payment is to get your account current as soon as possible. Once your payment is 30 days past due, your lender can report it to the credit bureaus, and that can cause a significant drop in your credit score.
4. Returned payment fees
Your lender can charge you a returned payment fee anytime you make a payment that doesn't go through. In most cases, this happens because the payment account has insufficient funds.
A returned payment fee can be either a flat fee or a percentage of your payment amount. Another problem that could arise after a returned payment is that you could end up missing your payment due date, resulting in a double whammy where you have to pay fees for the returned payment and the late payment.
5. Collections fees
What you absolutely must avoid with a student loan is defaulting. Not only will this wreak havoc on your credit, but it also gives the lender the right to charge steep collections fees for the costs it incurs in collecting what you owe.
When are you considered to be in default on your student loans? The time frame for most federal student loans is 270 days without making a payment. Among private lenders, default time frames can vary. Whether you have a federal or private student loan, the only way to know for sure is to check the terms of your loan agreement.
Collections fees normally range from 18% to 40% of your outstanding loan balance. To make things even worse, once your loan goes into default, the entire outstanding balance plus collections fees becomes due right away.
With a student loan that has a remaining balance of $40,000, collections fees could tack on anywhere from $7,200 to $16,000, resulting in a new balance of $47,200 to $56,000.
6. Deferment or forbearance fees
If you can't make your loan payments, deferment and forbearance are two ways you can either put your loan on hold or reduce your payment amounts for the time being. The difference between these two options is that deferred loans typically don't continue accruing interest, whereas loans in forbearance do.
Deferment and forbearance are more common with federal student loans than with private student loans. That said, there are private lenders that offer them.
When private lenders offer deferment or forbearance, they may charge a fee for this service. This may be a flat fee or a monthly fee.