Understand and Minimize Student Loan Fees and Interest

Working OnlineAre you borrowing PLUS or Stafford Loans to pay help pay for your degree, or do you think you might need to borrow them in the future? If so, it’s good to be aware of the costs associated with these loans: origination fees and interest. Read on to learn about recent changes to these fees and what you can do now to reduce the costs associated with your PLUS and Stafford loans.

Origination Fees

Whenever you borrow a federal loan, a portion of the total loan amount goes to the government to pay for processing. This is called an “origination fee.”

The loan origination fee rates decreased on October 1, 2015; any new federal loans created for you after that date will be charged the new fee rates.

Here is a comparison of the old fee rates and the new fee rates, based on the loan disbursement date:

  • Old Fee Rates in this table apply to loans first disbursed on or after October 1, 2014, and before October 1, 2015.
  • New Fee Rates in this table apply to loans first disbursed on or after October 1, 2015, and before October 1, 2016.

Origination Fees
Federal Direct Loans

Loan Type Loan Fee Percent Fee Example
Stafford Loan (Subsidized and Unsubsidized) Old: 1.073% $59.01 on a
$5,500 loan
New: 1.068% $58.74 on a
$5,500 loan
PLUS Loan (Parent and Grad/Prof Student) Old: 4.292% $429.20 on a
$10,000 loan
New: 4.272% $427.20 on a
$10,000 loan

Find more information on the Office of Student Aid website about the new origination fees and net vs. gross loan amounts.

Interest Rates

Interest accrues on Unsubsidized Stafford Loans and PLUS Loans while you are in school and afterward. It does not accrue on Subsidized Stafford Loans while you are enrolled at least part-time.

Federal Direct Loan interest rates decreased on July 1, 2015; any new federal loans created for you after that date will accrue interest at the new rates.

Here is a comparison of the old interest rates and the new interest rates, based on the loan disbursement date:

  • Old Interest Rates in this table apply to loans first disbursed on or after July 1, 2014, and before July 1, 2015.
  • New Interest Rates in this table apply to loans first disbursed on or after July 1, 2015, and before July 1, 2016.

Interest Rates
Federal Direct Loans

Loan Type Interest Rate Example Aggregate Interest* Example Total Loan Cost*
Stafford Loan for undergraduate students (Subsidized and Unsubsidized) Old: 4.66% $1,404 on a $5,500 loan $6,904
New: 4.29% $1,277 on a $5,500 loan $6,777
Stafford Loan for graduate students (Unsubsidized) Old: 6.21% $3,529 on a $10,250 loan $13,779
New: 5.84% $3,282 on a $10,250 loan $13,532
PLUS Loan (Parent or Graduate Student) Old: 7.21% $4,158 on a $10,250 loan $14,408
New: 6.84% $3,905 on a $10,250 loan $14,155

* After 10 years on the Standard Repayment Plan. Loans paid off faster accrue less interest.

Find more information about interest rates on the Office of Student Aid website.

How to Minimize Student Loan Fees and Interest

  • Monitor your borrowing
    • On eLion, select “Financial” and then “Loan Debt Summary” to view your cumulative debt. Higher debt means that you have paid more in fees and will pay more in interest.
  • Decrease your loan amounts
    • On eLion, select “Financial” and then “Loan Decrease.” The Financial Aid Office can help you determine the lowest amount to borrow to meet your needs.
  • Make interest payments while you are in school
    • You do not have to make any payments on your federal loans while you are enrolled at least part-time. However, if you pay the interest that accrues while you are in school, you will avoid having to pay interest on interest after you graduate (this is called capitalization). Even small payments can make a big difference in the long run — see how much you could save. You can make payments through your loan servicer (find your loan servicer information at the National Student Loan Data System).
  • Use caution with high-interest loans
    • This includes Federal Direct PLUS Loans and private loans. If you must use these loans, use the smallest amounts possible.
  • Pay your loans off as quickly as possible

Questions?

If you would like to speak with an aid counselor about your individual situation, please contact us at 814-867-4244 or financialaid@outreach.psu.edu.

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