Word of the Day Wednesday: Origination Fee
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 1.072% for Federal Direct Student Loans first disbursed from December 1, 2013 to September 30, 2014.
- The Origination Fee is 1.073% for Federal Direct Student Loans first disbursed from October 1, 2014 to September 30, 2015.
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, which will be disbursed on August 29, 2014.
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.