History of Student Loan Fees

Student loan fees are charged as a percentage of the amount borrowed. Fees on student loans usually are deducted from the disbursements and not paid up front. Student loan fees can include origination fees, guarantee fees and default fees.

An origination fee covers the cost of making the loan. The terms guarantee fee and default fee are often used interchangeably. A guarantee fee guarantees the loan against default, while a default fee covers the cost of the default. Federal student loans allow loan fees to be added to the amount borrowed. 

For example, if you borrow $10,000 with a one percent fee, you will be left with $9,900 after the one percent fee is deducted. On a loan with a 10-year repayment term, four percent in fees is roughly the equivalent of a one percentage point higher interest rate with no fees. If you intend to pay off the loan early, try to avoid fees. Instead, ask the lender to roll the fees into the interest rate.

Fees on private student loans are set by the lender. Many private student loans have no fees, rolling the cost of the fees into the interest rate. This table shows the historical fees on Federal Stafford loans and Federal PLUS loans.

Originally, the fees of Federal Stafford loans were a combination of origination fees and guarantee fees. Origination fees on Federal Stafford loans were gradually phased out from 2006-07 through 2010-11, leaving just the one percent guarantee fee. The fees on the Federal PLUS loan did not change.

Sequestration, as enacted by the Budget Control Act of 2011, reduces the federal budget annually from fiscal year 2013 through fiscal year 2021. These budget cuts cause the fees to increase slightly each year on October 1, the start of the new federal fiscal year. The fees on the Federal PLUS loan are four times the fees on Federal Stafford loans.