Federal Subsidized, Unsubsidized and PLUS Loans can carry with them loan fees that are taken out of the principal prior to disbursement. Therefore, borrowers can find that the total of their loan disbursements may be slightly lower than the amount borrowed.
Ultimately, repayment is based on the gross amount borrowed (not the net amount that accounts for these fees). This amount is on your disclosure statement sent to you whenever a new loan is secured. As well, a loan could have accrued interest when you begin repayment.
Origination fees are collected to help pay for the administration of the loan programs by the U.S. Departments of Education and Treasury. These fees are similar to processing fees often attached to consumer loans.
Due to the government sequester that went into effect on March 1, 2013, loan origination fees on new federal loans first disbursed (sent to UC) increased slightly. Again, this is only on new loans disbursed for the first time on or after July 1, 2013. Increases that are date-specific affect acceptance, increases or loan process completions later in the academic year.
*Rates beginning October 1, 2014, will be posted here once announced by the Department of Education.
For Direct Loans after July 1, 2012
Direct Loans with their first disbursement on or after July 1, 2012, have a straight forward origination fee. Direct Subsidized and Unsubsidized Loans have a 1.0% origination fee. Direct PLUS Loans (for parents or graduate students) have a 4.0% origination fee.
Prior to July 1, 2012, an upfront rebate (or reduction) in the origination fee was offered. However, many borrowers had the upfront rebates charged back to them when they were in repayment even in cases where only a single payment was received late. With the elimination of the upfront rebates previously offered, the loan program avoids having a hidden or surprise fee for borrowers later while in repayment.
For Direct Loans taken at UC between July 1, 2010, and June 30, 2012
UC switched to the Direct Lending program in 2010-11. Direct Subsidized and Unsubsidized Loans had a 1.0% origination fee charged with a 0.5% up front interest rebate. Therefore, students experienced only a 0.5% fee subtracted from the gross amount borrowed during this timeframe.
Direct Parent and Graduate PLUS Loans had a 4.0% origination fee with an up front interest rebate of 1.5% resulting in only a 2.5% reduction from the borrowed amount.
Student or parent borrowers who fail to make on-time payments when their loans are in repayment risk having the up front interest rebate for all Direct Loans added back onto their principle loan balance.
For Loans Prior to June 30, 2010
Lenders were allowed to charge an origination fee to help defray some of the costs of loaning money when repayment may be delayed for several years. Maximum fees were set by legislation. The 3% maximum was in effect for Federal PLUS Loans, but Federal Stafford Loans saw annual reductions to the maximum down to a 1% fee during 2009-10.
For Direct Loans after July 1, 2010
Direct Loans do not have a default fee assessed to them.
For Loans Prior to June 30, 2010
The guaranty agency that secures loans with lenders and schools on behalf of the Department of Education is charged a 1% default fee.
With each new loan secured in your name, a disclosure statement is issued that outlines terms of the loan, amounts, fees, and disbursement dates. Carefully review and keep these statements to better understand your loan and any fees taken out before the funds are sent to UC in your name.
When estimating amounts for Federal Direct Loans, you should estimate the same way the billing system will predict semester loan amounts.
Take the total (gross) loan amount accepted on your award offer and subtract 1.072% off of Subsidized and Unsubsidized Loans and 4.288% off of Parent and Graduate PLUS Loans to account for both origination and default fees. Then divide this net loan amount by the number of loan payments (usually 2 as most loans are for the 2-term academic year).
By estimating these fees, you will be able to better anticipate any remaining balance that needs to be covered after all aid is applied toward your bill.
Given the shifting changes in origination fees that occur mid-year, a billing estimate may differ from an actual loan amount but that difference should be minimal.
Always recheck your bill following a loan posting to your account to ensure any amounts due are paid in a timely manner.