4 Student Loan Fees to Watch Out For

Quick Answer

Some of the student loan fees you may face include an origination fee, a late fee, a returned payment fee and, if you default on your loan payments, collection fees.

A college student avoiding student loan fees, looking concernedly at a paper while sitting at a desk in front of his laptop.

If you decide to use student loans to pay for your college education, interest is just one of the costs you might incur. Depending on the type of loan you choose and how you manage your payments, your lender or loan servicer may also charge you fees.

Here are some common student loan fees and how to avoid them.

1. Origination Fee

An origination fee is an upfront charge, typically a percentage of your loan amount, that lenders deduct from the loan proceeds.

Private student loans generally don't charge origination fees, but they're standard for federal student loans, where they're called a "loan fee." For direct subsidized and unsubsidized loans, the loan fee is currently 1.057% of your loan amount, and for direct PLUS loans, the fee is 4.228% of the loan amount.

Unfortunately, you can't avoid the upfront loan fee on federal student loans. But if you're applying for a private loan, make sure the lender you're applying with doesn't charge one.

2. Late Fee

Your lender or loan servicer may assess a late fee if you miss a payment. In many cases, though, you may get a grace period before the lender or loan servicer charges you.

With federal student loans, you'll get 15 to 30 days after your payment is due to get caught up and avoid a late charge. If you don't meet that deadline, your fee may be as much as 6% of your monthly payment amount.

With private student loans, the late fee amount and grace period will vary by lender. For example, you may only get 10 or 15 days before a fee is assessed, and that fee can be a percentage of your loan payment or a flat amount, such as $15 or $25.

Fortunately, it's easy to avoid late payment charges on your student loans. Set up automatic payments on your account or set a reminder to make your payments manually each month. If you miss a due date, get current on the account before the grace period ends. If you find yourself in financial trouble, consider asking your lender for forbearance or deferment to avoid missing a payment.

3. Returned Payment Fee

If you try to make a payment on your loans but don't have sufficient funds in your checking account to cover it, your payment may be returned. In this event, you may be charged a fee, typically a flat amount.

Depending on the lender or loan servicer, the fee can range from $5 to $30. The best way to avoid this charge is to always ensure there's enough cash in your bank account to cover your financial obligations. If you close your account or switch to another bank, make sure you update your recurring payments to avoid a returned payment charge.

4. Collection Fees

If you default on your student loans, they may be assigned to a debt collection agency. Depending on the type of loans you have and the situation, the agency may tack on collection fees to the balance that you owe.

For federal student loans, these fees can add up to as much as 18.5% of your outstanding principal and interest. With private student loans, the fees can vary depending on who your lender is.

You can avoid costly collection fees by ensuring that your account doesn't go into default status. With federal student loans, income-driven repayment plans and deferment and forbearance options can provide significant relief for those who can't afford their payments. With private loans, contact your lender to learn about your relief options.

The Bottom Line

Student loan borrowers can incur both interest and fees on their student loans. If you apply for federal student loans, expect to pay an upfront loan fee when your funds are disbursed. Otherwise, you can generally avoid late, returned payment and collection fees if you make your payments on time every month.

If you think you might miss a payment, contact your lender or loan servicer to discuss your relief options.