On January 9, the Congressional Research Service (CRS) published an overview examining the history and legislative evolution of federal student loan origination fees. The article provided that the U.S. Secretary of Education currently assesses borrowers’ student loan origination fees on Direct Subsidized and Unsubsidized loans (set at 1 percent) and PLUS loans (set at 4 percent). According to the report, these fees are intended to offset a portion of the federal government’s Direct Loan subsidy costs by shifting certain expenses to borrowers. The article also noted that origination fees in the Direct Loan program were most recently amended by the Deficit Reduction Act of 2005, which established a tiered fee structure that was subsequently phased down. This process resulted in the current fee rates applicable to loans made on or after July 1, 2010.

CRS further highlighted that origination fees are deducted from loan disbursements rather than paid upfront. As a result, borrowers receive less than the total amount they borrow to cover their cost of attendance, while remaining obligated to repay the full loan principal plus interest. The report characterized this structure as effectively causing interest to accrue on the origination fees themselves.