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Borrowing tens of thousands of dollars in student loans is unfortunately quite common for students pursuing a college education. The average 2020 college graduate borrowed $28,400 in student loans, according to the College Board. But that figure isn’t all borrowers owe – they also have to pay interest and other fees.

Although many borrowers focus on loans with the lowest interest rates, other types of fees can also affect the cost of your loan. Federal and private student lenders charge a variety of fees, but some may be avoidable. Here are common student loan fees to watch out for.

1. Set-up costs

Some lenders charge origination fees for processing your loan. This is usually a percentage of your total loan and is subtracted from the amount you are borrowing. Say, for example, you’re approved for $10,000 in unsubsidized federal loans, with a 1.057% origination fee. This results in a fee of $105.70, which is deducted from your total loan amount. You will therefore receive $9,894.30 for the year.

All federal student loans and some private student loans charge origination fees. Private loan origination fees vary greatly from lender to lender, but it is possible to find a private loan that does not have these fees. For federal student loans, the origination fees in 2022 are:

  • Subsidized and unsubsidized direct loans: 1.057%
  • MORE ready: 4.228%

2. Late payment fees

If you don’t make the minimum payment by the due date, you may have to pay late fees. Most private and federal student loans charge late fees. With federal student loans, your loan officer, not the government, collects the fee.

Some lenders charge a flat rate for this, like $25 each time. Others charge a percentage of the amount owed; if you owe $300 and there’s a 5% late fee, that’s an extra $15 added to your bill. Read your loan promissory note to see how much a late payment could cost you.

Each lender has different interpretations of “delay” – some will give you 15 or even 30 days as a grace period to make the payment. Others consider the next day to be over and therefore late. Some lenders, like SoFi, don’t charge late fees.

You can avoid late fees by setting up autopay, which will automatically pay your student loan bill each month at a set time.

3. Returned Payment Fees

If you submit a student loan payment but don’t have enough money in your bank account to cover it, you could face a repayment fee, also known as an insufficient funds fee.

Private and federal student loans may charge this fee. It can be levied as a percentage of the amount owed or as a lump sum, varying according to the lender. It is common for these fees to range between $15 and $30.

4. Collection costs

If you are unable to repay your student loans and your debt is collected, a fee is added to the principal amount owed. Private and federal student loans charge collection fees, which can add 20% or more to your monthly payments.

Failure to repay your student loans has catastrophic repercussions. Not only will fees increase, but the total outstanding balance may also become due immediately. Your credit score will plummet and your salary, tax refund or social security benefits may be garnished.

5. Abstention or adjournment costs

Deferment and forbearance temporarily suspend your student loan payments for a specified period of time under certain circumstances. While this can help keep your loans in good standing, lenders may charge you a fee for this privilege. The exact terms vary by institution, so review your options with your lender.

In addition to fees, most types of student loans will continue to accrue interest when you request a payment break.

Rare or abandoned student loan fees

Although certain types of student loan fees are common, there are some fees you should reconsider when looking at different lenders.

Registration fees

Most private student lenders do not charge a fee to submit an application. If you find one that does, do the math to see if the fees and interest rate would be lower than another lender that doesn’t charge these fees. If the lender charging an application fee is lower overall, you might want to consider paying the upfront fee. Otherwise, keep your options open and find a lender with lower fees.

Penalty for prepayment

A prepayment penalty incurs a fee if you pay off your loans before the end of your repayment period, but student lenders don’t punish you for paying them off early.

Although this type of fee is more common in other types of loans, it is not allowed in student loans. If a lender is trying to charge you a fee for prepaying your student loan, you may be working with a scammer.

How to Evaluate and Compare Student Loan Fees

If you’re browsing through different student lenders, take the time to see which offer the best rates.

First, it’s important to understand the difference between a loan’s interest rate and the annual percentage rate (APR). The interest rate is simply the amount the lender charges to lend you money. The APR, however, calculates the total annual cost of the loan, including the interest rate and fees. For this reason, it is best to review the APR when comparing loans from different lenders.

You might see that one lender has a higher APR compared to another lender’s simple interest rate. Don’t confuse the two and be sure to compare the same type of rate between different lenders.

For federal student loan borrowers, you may not pay attention to who your loan officer is until you graduate (although you do know who it is when your loan is first disbursed ). But checking which company will handle your debt can help you plan for fees and charges that might arise.

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