College is pricey, with a year at a public, in-state university averaging nearly $25,000. As a result, many students need to take out student loans to pay for school. According to The College Board, 50% of bachelor’s degree graduates left school with student loan debt.
Student loans can be useful tools to finance your education, but it’s important to be aware of all of the costs, fees, and penalties that can come with education debt.
Common Student Loan Fees and Penalties
Fees can vary by loan type — federal or private — and lender. In general, you can expect the following costs with most student loans:
1. Annual Percentage Rate (APR)
The loan APR is the rate of interest you’ll pay on the loan in a year, represented as a percentage.
Federal loans have fixed interest rates. For loans issued between July 1, 2024, and June 30, 2025, the rates are as follows:
- Direct Subsidized: 6.53%
- Direct Unsubsidized (Undergraduate): 6.53%
- Direct Unsubsidized (Graduate): 8.08%
- Grad and Parent PLUS Loans: 9.08%
Private loans can have fixed or variable rates. While fixed rates never change, variable-rate loans can go up and down over the life of your loan. Rates vary by lender, but private undergraduate loans usually range between 3.5% and 18.00%.
2. Origination or Disbursement Fees
Federal loans and some private student loans may involve origination or disbursement fees. These fees are usually taken from the total loan amount before the funds are disbursed to the borrower. For example, if you take out a $10,000 loan with a 2% disbursement fee, you’d only receive $9,800, but you’d pay interest and have to repay the principal amount of $10,000.
Federal loans have the following disbursement fees:
- Federal Direct Subsidized and Unsubsidized Loans: 1.057%
- Grad and Parent PLUS Loans: 4.228%
Origination or disbursement fees are less common with private student loan companies; most don’t have this kind of fee, but some do, particularly loans that are geared towards international students or students without credit histories. If a private lender does charge an origination fee, you can expect to pay anywhere from 1% to 5% of the loan amount.
3. Late Payment Fees
If you miss a payment with your student loans, you may be charged a fee per late payment.
Previously, federal loans charged late fees, but that’s no longer the case; The U.S. Department of Education doesn’t charge late fees on any federally-held student loan.
By contrast, private student loan companies usually charge late fees. The fee varies by lender, but you can typically expect to pay about $20 per incident.
4. Collection Costs
If you enter into default, the lender may send your account to collections, meaning a collections agency will take over efforts on collecting payments. Collections agencies can be aggressive and persistent and, to reconcile your debt, you usually will have to pay a fee to cover the collections agency’s expenses on top of the principal and interest.
Collection costs can be as much as 25% of the defaulted loan balance.
[Important: Previously, some student loans had prepayment penalties, or fees for paying off the loan ahead of schedule. However, the Higher Education Act of 2008 barred lenders from charging prepayment penalties.]
Typical Fees for Student Loan Refinancing
Refinancing is a process of replacing your existing student loans with a single new loan. Depending on your financial goals, you could refinance to take advantage of lower interest rates or adjust your loan term and payment amount.
Top student loan refinancing lenders like ELFI don’t charge application or origination fees, so there’s no cost to refinance your loans. However, there are still some factors you should consider:
- APRs: Like in-school loans, student loan refinancing involves interest charges. When you refinance, you’ll pay a rate of interest on the principal. The federal government doesn’t offer student loan refinancing, so the only option is to work with a private lender, and rates can be fixed or variable.
- Late fees: As with most student loans, refinancing requires you to make your payments on time. If your payment is late or returned to you for insufficient funds, your lender may charge you a late fee. Fees vary by lender, but are usually around $20 per incident.
- Collection costs: If you default on your refinanced loan, the lender could send your account to collections, and you’ll have to pay a percentage of the principal, interest and late fees.
Understanding Your Student Loan Terms
Before taking out a student loan or refinancing student loan debt, be sure to carefully review the loan application and disclosure. This is a standardized form that outlines the loan’s interest rate and fees, including the loan APR, late fees and other costs. You can request the form from the lender before submitting your application.
Shopping around can help you find the best rates; you can use ELFI’s “Check My Rate” tool to view potential loan options without affecting your credit score.
