When taking out a student loan, these two most important factors you need to look at are the interest rate and the repayment terms. However, those are not the ONLY two factors you should be looking at. It is equally important to check out the fees associated with the different types of student loans. These fees add to the total amount you are borrowing and ignoring them could skew your calculations and put you at higher risk for defaulting on your loan.
Here’s a look at the different types of fees usually associated with student loans.
Origination fees are pretty much unavoidable when you are borrowing money. All lenders will charge you an origination fee when you borrow money. This fee is essentially a processing or administration fee, and is meant to compensate for the costs associated with processing the loan. You can expect to pay origination fees on federal student loans as well as private student loans.
Lenders may or may not spell it out to you but the way it works is that the origination fees are typically built into the total amount that you are borrowing. What this means is, you will not receive the full amount that you apply for. Instead, the lender will deduct the origination fee from the total amount you are borrowing before the funds are disbursed to you or to your school.
So if you have taken a loan of $25,000, what you will actually receive is $25,000 minus the origination fees. However, and this is important, when paying back the loan, you have to pay back the full amount of $25,000 + the accrued interest on that amount.
While the origination fees are fixed for federal student loans, they can vary for private student loans. Private lenders base their charges on various factors, primarily the creditworthiness of the borrower.
Late Payment Fees
When you borrow money for college, whether it is from the federal government or a private lender, the terms and conditions will clearly state the due date by which you are expected to make your monthly payments. Although this date is not flexible, most lenders will give you a grace period of about 10 to 15 days. If you still do not make the payment within that time, they will charge you a late fee that could range anywhere from 5% to 15% of the amount due. If you miss multiple deadlines, this could add up substantially.
Collections Fees on Loan Default
If your monthly payment is late by more than 270 days, you are considered to be in default of your loan. Loan default is taken very seriously by lenders, who then hand your account over to a private collection agency. Private collection agencies will make a concerted effort to recover the money from you and will charge you a hefty fee for the effort. This fee could range anywhere from 18% to 40% of the balance. You must everything you can to avoid this scenario as it can push you further into debt.