U.S. Senator Mike Braun (R-Ind.) has reintroduced the Student Loan Tax Elimination Act, which removes the “origination fee” that adds unnecessary debt to student borrowers’ overall student loan costs.
Braun
“Student loan origination fees are nothing more than a hidden tax that burdens students,” Sen. Braun said. “This legislation is a step forward and offers one solution to addressing our broken higher education system that fails to put students first.”
The Act also mitigates the impact of this tax to cover overall national debt.
Information provided by National Association of Student Financial Aid Administrators:
Origination fees are 1 percent for Direct Subsidized Loans and Direct Unsubsidized Loans, and 4 percent for all Direct PLUS Loans where the fees offset subsidies to lenders.
The Higher Education Act of 1965, as amended, specifies a loan origination fee of 1 percent for all Direct Subsidized Loans and Direct Unsubsidized Loans, and a fee of 4 percent for all Direct PLUS Loans for both parent borrowers and graduate and professional student borrowers. Origination fees are adjusted annually due to sequestration. Origination fees are a relic of the bank-based guaranteed student loan program, a program where the fees offset subsidies to lenders that no longer originate such loans.
Student loan origination fees sends $1.7 billion to the federal government.
Student loan origination fees generated $1.7 billion in revenue for the federal government in award year 2017-18, and $8.3 billion over the past five award years.
The average undergraduate student pays $294 and the average graduate student pays $1,174 in origination fees.
The average undergraduate borrower in a four-year program will pay an estimated $294 in origination fees and associated interest if enrolled in a standard 10-year repayment plan, while the average graduate student in a two-year program pays about $1,174 in fees and interest on that fee if repaying over 10 years.