Word of the Day Wednesday: Origination Fee
Each Wednesday, MEFA will feature a Word of the Day, in which we'll highlight a word (or sometimes a phrase) related to the college planning process. This month, we're focusing on vocabulary related to Federal Direct Student Loans, and will highlight terminology related to borrowing a Direct Loan.
Today's Word of the Day is Origination Fee.
The Origination Fee is the cost associated with borrowing a Federal Direct Student Loan (some private education loans also carry an Origination Fee). The Origination Fee is charged to the borrower, and is calculated as a percentage of the loan amount.
The origination fee is deducted from the original loan amount, rather than charged on top. This means a loan borrower will receive less in loan funds than the total amount borrowed. However, the borrower must repay the total loan amount, not just the amount of loan funds received.
Here is an example:
A student is awarded a $5,500 Federal Direct Student Loan for freshman year.
- Original award: $5,500 for the academic year
- Origination fee: 1.072% or $58.96
- Actual loan amount disbursed: $5,500 minus $58.96 equal to $5,441.04
Because schools divide loan amounts between the fall and spring semesters, this student will receive half of the loan amount, or $2,720.52, in the fall semester and the other half in the spring semester.
Why does this matter to you?
If you're borrowing a Federal Direct Student Loan, it's important to know the amount of loan funds that you will receive to help you pay for college costs. The Origination Fee will directly impact the amount of loan funds that you receive.
For more details on the Origination Fee, visit the Federal Student Aid website.