While researching and comparing the cost of a student loan, it’s common to focus primarily on the loan’s interest rate. But other student loan fees, such as late fees, origination fees and returned payment fees, may also influence your total borrowing costs. However, learning how these fees work can help you avoid some of them.

Even after calculating your principal and interest costs, you may still be on the hook for additional charges on your student loans. Some student loans charge application or origination fees, and things like late fees or returned check fees can quickly become expensive. However, there are ways to avoid most fees on student loans.

Types of student loan fees

Student loan fees are charges — a percentage or a flat dollar rate — for taking out the loan or falling short on payments. Both private and federal student loans may charge fees, but they typically have different charges.

Some of the fees you might expect from a student loan include:

  • Collection fee. If you default on your student loan, a collection agency may add a collection fee to the outstanding principal balance. While the collection fee amount varies, it can increase your monthly payments by 20 percent or higher.
  • Late fee: Late fees may be charged if you don’t make a minimum payment by the due date. They’re usually charged the day after the payment is due, though some lenders have a grace period of up to 15 days. Sometimes it’s a percentage of the amount owed or a flat rate, but usually, it totals anywhere from $5 to $25.
  • Origination fee: Origination fees are calculated as a percentage of your total loan amount and then are subtracted from your loan before it’s disbursed to you. All federal student loans charge an origination fee, currently 1.057 percent for Direct Unsubsidized and Subsidized Loans and 4.228 percent for Direct PLUS Loans. Some private lenders may charge origination fees as well.
  • Returned check fee: Sometimes called an “insufficient funds” fee or “payment return” fee, this charge comes if you don’t have enough money in your account to cover the payment or if your check bounces. It can come out as a flat rate or a percentage of your loan amount, depending on the lender, but it usually totals around $20.

All potential student loan fees may not be listed on a lender’s website, so you should review the fine print before signing your loan agreement.

How student loan fees affect your payments

Loan fees can have a huge impact on how much you borrow, as well as how much you owe. For one thing, if you take out federal loans, the amount of money you get isn’t the amount you were approved for. For instance, if you request $10,000 and you’re charged the 4.228 percent origination fee, you would receive only $9,577.20 — even though you’re still required to pay back the full $10,000. In some circumstances, this may mean that you have to take out additional loans to cover the full cost of school if your original loan doesn’t.

Late fees or insufficient funds fees can also add up. If your lender charges $25 for a late payment, missing just four payments over the course of the year will add $100 to your loan repayment. To avoid this, it’s a good idea to set up automatic payments so you don’t have to rely on calendar reminders.

Federal vs. private student loan fees

There are a few big differences between federal and private student loan fees. Most significantly, many private lenders have done away with origination and application fees, while origination fees are charged on all federal loans. Some private lenders, like SoFi, have also eliminated common fees like late fees.

At first glance, this may seem like a strong case for private loans over federal loans. However, fees don’t tell the whole story. Federal student loans come with many benefits and assistance that might help in an emergency, such as the current payment pause due to the coronavirus pandemic. Private student loan lenders offered some hardship assistance in the first few months, but that was on a case-by-case basis and not everyone qualified. Most private lenders have resumed payment requirements for borrowers, regardless of income.

Even though federal student loans charge an origination fee to borrow the loan, federal interest rates are fixed and usually much lower than rates offered by private lenders, particularly for borrowers with poor credit scores. This is why it’s almost always best to start your search with federal loans and go to private lenders after you’ve exhausted those options.

The bottom line

When comparing student loans, it’s a good idea to consider student loan fees like late fees and origination fees in addition to interest. Doing so can help you find the student loan that fits your needs and budget. 

That said, even if a private lender doesn’t charge an origination fee, a federal student loan may still be a better first choice since they come with access to benefits, such as income-driven repayment plans and student loan forgiveness programs. By taking proactive steps like setting up autopay, you may never have to worry about some of the most common student loan fees, like late and collection fees.