It's Time to End the Hidden Tax on Student Loan Borrowers

New NASFAA policy brief urges Congress to eliminate student loan origination fees.

November 20, 2017— Following the recent release of the House and Senate Republican tax bills, many are discussing the implications that the proposals moving through Congress could have on higher education. But, outside the tax code, there's a hidden tax many college students face that isn't getting any airtime: student loan origination fees.

As the National Association of Student Financial Aid Administrators' (NASFAA) new policy issue brief explains, these fees were originally put in place in the 1980s, to defray the operating costs of the Federal Family Education Loan (FFEL) program. But that private-federal partnership dissolved in 2010 with the Department of Education's move to 100 percent Direct Lending. Now that the FFEL program is defunct, these origination fees work solely as a federal budget deficit reduction tool, to the detriment of students.

When a college student borrows a federal student loan, the net amount disbursed to the student is reduced by the origination fee percentage and those funds are withheld by the Department of Education. So, for example, if a student borrows an unsubsidized Federal Direct Loan of $4,124, $43.96 is withheld by the Department of Education, but the student is still responsible for paying back the full $4,124—plus the interest.

The federal government charged $1.6 billion in origination fees in 2016-17, and collected more than $8.1 billion in origination fees from students and parents over the past five years.

"It is unconscionable that the average undergraduate student will pay $235 in origination fees and associated interest over 10 years on an artifact of the prior loan system," said NASFAA President Justin Draeger. “We are committed to ensuring that federal student aid policies support students to the fullest extent, and by eliminating this unnecessary and outdated tax, we can remove one of the hurdles faced by millions of federal student loan borrowers."

Lawmakers from both sides of the aisle have proposed legislation to simplify the financial aid process, make it more transparent, and increase college affordability. Eliminating student loan origination fees is a crucial, simple step toward achieving those goals.

To learn more about origination fees or discuss NASFAA's new policy issue brief, contact NASFAA Director of Communication Erin Powers at 202-785-6959 or powerse@nasfaa.org.

About NASFAA

The National Association of Student Financial Aid Administrators (NASFAA) is a nonprofit membership organization that represents more than 20,000 financial aid professionals at nearly 3,000 colleges, universities, and career schools across the country. NASFAA member institutions serve nine out of every ten undergraduates in the United States. Based in Washington, D.C., NASFAA is the only national association with a primary focus on student aid legislation, regulatory analysis, and training for financial aid administrators.

Publication Date: 11/20/2017

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