Student loan origination fee is the amount charge by a lender to process a loan. It is calculated as a percentage of the loan amount (principal) request by the borrower before the lender process the loan.
Students or parents who wish to obtain federal student loans must know certain requirements. Origination fee on student loan is one of these requirements lenders accept before get your loan processed.
There are different student loans offered by the feral government which means the origination fee varies too. But the most common fee is 5% of your loan amount which will either be added to the principal or taken out. There is no way, it’s going to be taken separately, everything will be done from the principal.
For example, if a borrower request for a student loan which amount to $5,000, the 5% origination fee on this principal will be $250. If the case where the origination have to be added, the total principal amount you will have is $5,250. This will be the principal amount you will pay plus the interest.
On the other hand, deducting it out of the principal amount will mean that your loan amount will be $4750. This become the loan amount you pay as principal plus interest.
Types of federal student loans and their origination fee
Under federal student loan, we have Direct subsidized loan, Direct Unsubsidized loan and Direct plus loan which attract a fee. As of 12/10/2021, the origination fee on the above student loans shows the following;
Direct Subsidized and Direct Unsubsidized stands at 1.057%. Which means the origination fee on $5000 will be $52.85. So adding up or subtracting will be $5052.85 and $4947.15 respectively.
Direct Plus loan stands at 4.228%. 5% origination fee on $5000 principals amount will be $211.40. So adding up or subtracting will be $5211.40 and $4788.60 respectively.
There are other forms of student loans but they do not charge origination fee. For example private student loans.
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