"The persistent but gratuitous idea that there is a national student debt crisis is hard to escape these days. It’s surprising, then, that there has been little effort put toward ending the tax levied against students and parents the second they take out a federal student loan," NASFAA President Justin Draeger writes in an op-ed published by Money.
"It’s a little known fact, but each time a student or parent takes out a federal loan, the government deducts an “origination fee,” which is a pre-set percentage of the total loan amount. For the current academic year the fee amounts to 1.069% for Federal Direct Loan borrowers and 4.276% for Parent and Graduate Federal PLUS Loan borrowers.
A student who takes out a $3,000 Federal Direct Loan will have $32.07 deducted from his or her loan disbursement. A parent or graduate student who takes out a $10,000 PLUS Loan, for example, would actually only receive $9,572.40. Despite the fact that borrowers never receive that money, they are responsible for repaying the entire amount of the loan, plus interest.
Of course origination fees are nothing new in the world of lending and borrowing. The term 'fee' implies that the funds will be used to offset some administrative cost of the program. But these 'fees' didn’t always exist on federal student loans. ..."
Publication Date: 11/17/2016