House Bill Seeks End To Student Loan Origination Fees

By Jesse O’Connell, Policy and Federal Relations Staff

Picking up a persistent clamor from students and aid offices alike, Rep. Susan Davis (D-CA) has introduced legislation that would end the practice of charging origination fees on student loans. The Fee Free Student Loan Act was introduced on September 24 and repeals the authorization to charge origination fees on all Direct Loans for undergraduate students, graduate students, and parents, with a proposed implementation date of July 1, 2015.

In a press release announcing the bill Rep. Davis describes origination fees as a tax on students, and points out that it adds billions of dollars to outstanding student debt in a decidedly un-transparent manner. The ongoing existence of origination fees is a residue of the Federal Family Education Loan (FFEL) Program; what began as a temporary budget measure has metastasized into a multi-billion dollar source of revenue at the expense of students.

NASFAA has been calling for an end to origination fees for years, and included such a recommendation in our proposals for reauthorization that were submitted to Congress last summer. More recently NASFAA placed a renewed focus on this issue in light of ongoing sequestration cuts that result in an increase in the origination fee each October. These trivial, yet administratively burdensome, increases represent mere pennies on most loans, but seem arbitrary to students and further erode their belief in the predictability and reliability of the federal aid system.

While the bill is not currently scheduled for a vote, there is a slight possibility it will receive attention during the so-called “lame-duck” session of Congress scheduled for November. Regardless of the ultimate fate of this specific bill, it remains an important and welcome issue marker as reauthorization continues into the next Congress. 

 

Publication Date: 10/1/2014


Mark A | 10/23/2014 1:5:55 PM

Don't we, as tax payers, pay most of the interest on subsidized loans while a student is enrolled?? Seems fair for a student to cover some of the cost.

Sharon K | 10/2/2014 12:37:25 PM

It is about time these fees are recognized for what they are, a tax on the borrowers of federal educational loans.

David S | 10/1/2014 3:44:30 PM

Not only are loan fees "residue" (good choice of words, Jesse) from FFEL, they predate the FFEL acronym, first introduced in the mid-80's as what was then described as a temporary deficit reduction measure. I've always found it odd that the party whose members of Congress take blood oaths to fight against taxes typically has no problem with this particular revenue enhancer. And while different creative accounting approaches result in different figures when it comes to how far in the black the federal student loan programs are, suffice to say that the elimination of the student loan tax would make a dent that would be barely negligible. Long overdue!

Joe P | 10/1/2014 12:49:46 PM

Is there anything more we can do to add steam behind this proposed legislation?

Tracy H | 10/1/2014 12:10:04 PM

I hope this suggestions actually gets taken seriously and doesn't get buried and lost...

Rose H | 10/1/2014 11:42:59 AM

Best news in long time.

Gwen H | 10/1/2014 10:18:56 AM

I agree with Andrew R. It would be wonderful if no one ever had to pay for services that they receive, however, that is not a reality. The money has to come from somewhere, so why not from the individual receiving the service?

Mary K | 10/1/2014 10:12:39 AM

Most students whom I inform about the origination and guarantee fees act as though they've never heard of them. Government isn't doing such a great job of at least letting students know of these charges' existence and their percentage of the students' loans.
For the most part, students become aware, in my experience, when they see their loan posted to their student account and realize the amount is lower than they expected and ask Financial Aid why that is so.
Mary

Andrew R | 10/1/2014 9:42:30 AM

This change is good and all.. But, how is the government going to make up paying higher loan amounts with an already overspent budget? While I agree this should be done, I am confident that this will cause the government to borrow more money than they are already doing (further encouraging sequestration cuts since a budget has yet to be passed these 6 years of the Obama presidency) and it will be a bigger financial burden on the economy as a whole rather than the smaller population of students that are paying this fee due to increased government spending (which usually equals tax hikes or more borrowing). Things to think about...

Justin B | 10/1/2014 9:30:08 AM

Yes, please.

Cristen A | 10/1/2014 9:25:59 AM

"These trivial, yet administratively burdensome, increases" - truer words have never been said, especially in light of the rounding rules. For 90% of the students whose loans I have had to change, this makes not a single bit a difference on the net disbursement of the loan. You're talking about a major administrative burden that does absolutely nothing!

Roberto L | 10/1/2014 9:2:20 AM

It will make the Parent Loan more appealing than the Alternative loan again. GREAT!

Jeannette F | 10/1/2014 9:1:13 AM

This is long over due. If we're asking students to pay their loans why not given them a fighting chance

Althea S | 10/1/2014 8:53:39 AM

Fantastic, wonderful, exciting, overdue........

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