Yes, student loans have origination fees too
Most people understand that student loans come with interest — which can add several thousand dollars onto the life of the loan, especially if you extend out your payments.
But many people don’t realize that federal student loans also come with origination fees, much like mortgages or car loans.
Origination fees add to student loan totals
An origination fee is a fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.
With student loans, the origination fee is charged when you are approved for the loan and is deducted proportionately from each loan disbursement you receive.
This means the amount of money you receive in student loans will be less than the amount you actually borrow. However, you’re responsible for repaying the entire amount you borrowed and not just the amount you received.
How much are student loan origination fees?
While origination fees may not add as much to your total as compounded interest, they’re definitely important to consider when deciding whether to take out student loans — and how much to borrow.
Current origination fees for federal Subsidized Stafford and Unsubsidized Stafford loans (disbursed on or after 10/1/17 and before 10/1/18) are relatively low, at 1.066%.
But fees for PLUS loans (which include Parent PLUS and Graduate PLUS loans) are several times higher, at 4.264%.
Avoid origination fees with private student loans
Unlike with federal student loans, one advantage of many private student loan companies is that they do not charge origination fees. This includes our partners at LendKey, as well as other popular companies such as SoFi.
Borrowers considering federal Parent PLUS or Graduate PLUS loans, in particular, should look into private student loans before committing to taking out these federal loans.
These borrowers may find they can save money on interest and origination fees by instead taking out a private loan with one of these companies.
No matter what type of student loan you choose, it’s important to carefully consider all additional fees and interest that will compound over the life of the loan.
We recommend attempting to limit college costs by choosing an affordable college, maximizing financial aid and scholarship money and avoiding taking on unnecessary student debt.