Many students going to college end up taking out student loans. When you apply for a student loan, lenders process your application before it can be approved. In industry terms, this is known as student loan origination.
Think of the root word “Origin.” This is a brand new loan, created by the lender for you.
Student loan origination basically refers to all the administrative work that is involved from the time you apply for the loan till the time that the funds are disbursed to you or till the time that your application is rejected. In other words, origination is the period of time that the lender puts together all the paperwork, reviews your application, and decides whether or not to lend you money.
What comes as a surprise to many borrowers is that lenders often charge them a fee to issue or originate their loan. You do not have to pay this fee when you apply for the loan. If your application is approved, you will receive the funds minus the origination fee. However, although the origination fee is deducted at source and you do not actually get it in your bank account, it is still considered as part of your loan. You have to pay it back along with the funds you’ve received. Don’t forget about the origination fees by the time you start repaying your loans.
How the Origination Fees Vary
Student loan origination fees vary from one lender to another. Some may waive off this fee altogether as an incentive to attract more business. It is a good idea to always check with the lender before you sign any agreement. Even if a lender waives off the origination fee, do not automatically assume that you are getting a great deal on your loans. Some lenders may impose other fees or a higher interest rate to make up the cost. You could actually end up with a more expensive loan. Make sure you carefully read over your loan contract before signing anything. You want to know exactly what terms and conditions there are, and anything else available to you.
Before signing any loan, always check with the lender about all costs involved and do your calculations to determine how much you are committing to pay over the life of your loan. Take your time with finding lenders and deciding which loan you want to take. Don’t feel pressured to commit to any one lender. At the end of the day, you’re the one repaying this loan. That means it’s on you to take the time to find the loan that’s right for you. Don’t let yourself take out a loan that you know you can’t feasibly handle or need. Student loans and the following debt can have a huge impact on your life post-graduation, which is why you want to do this process right.
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