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Will You Get Charged a Student Loan Origination Fee?

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Student Loan Origination Fee
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Most people know that when you’re considering borrowing money for your education, it’s extremely important to take interest rates into account. But did you know that in addition to interest rates, some types of student loans also carry origination fees?

What is an origination fee?

An origination fee is a one-time fee collected at the time the loan is disbursed; it is typically a percentage of the total loan amount. This means that instead of receiving the entire amount that you borrow, you receive the amount that you borrow minus the loan origination fee.

Origination fee rates

Most types of federal student loans, with the exception of Perkins loans, carry an origination fee. The current loan origination fees in 2016 for federal subsidized, unsubsidized, and PLUS loans are as follows:

Federal Direct Subsidized Loans: 1.068%

Federal Direct Unsubsidized Loans: 1.068%

Federal PLUS Loans: 4.272%

Decoding the cost

This means that if you take out, for example, a $10,000 unsubsidized loan from the federal government, the loan origination fee will be $106.80. So instead of receiving the full $10,000, you will only receive $9,893.20.

Similarly, if you take out the same $10,000 using a federal PLUS loan, the loan origination fee will be $427.20. In this case, you’ll only receive $9,572.80.

However, in both of these cases you will still be required to pay back the full $10,000. Additionally, interest will accrue on the full amount you borrowed and not just the amount you received.

Note also that the fees listed above are the current fees for new loans and are valid until October 1, 2016, at which time they may be adjusted. Additionally, if you took out a federal student loan prior to October 1, 2015, your fee may be different. You can find more information about origination fees on federal student loans at the StudentAid.gov website.

Private lenders don’t always charge origination fees

In contrast to the federal government, many top private lenders, such as Discover, Sallie Mae, and PNC, do not charge origination fees for loans that are applied toward study at undergraduate or graduate colleges. However, keep in mind that there may be other disadvantages to borrowing from private lenders, such as higher interest rates or a lack of the types of loan forgiveness, income-driven repayment plans or forbearance and deferment programs that are available through the federal government.

Always crunch the numbers

Origination fees are important to be aware of when considering taking out student loans. When you take out a loan with an origination fee, you will always be paying back the total amount that you borrowed, rather than the amount you received after the origination fee was subtracted, and interest will also accrue on that total amount. Although origination fees are one-time fees, they’re important to factor into your overall financial and loan repayment plan.

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Collection Fees on Student Loans You Never Knew Could Happen

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If you’ve ever been through federal student loan entrance counseling, then you know that failing to make payments on federal student loans can have serious consequences. If you fall behind on your required monthly payments after you graduate, the Department of Education may take steps like garnishing your wages before they ever reach your bank account, withholding your tax refund, or even suing you.

But did you know that failing to pay back your federal student loans could also make you liable for collection fees?

If you have federally-financed student loans that are in default—which in most cases means that you haven’t made payments for 270 days—the federal government may refer your account to a collection agency. What may come as a surprise is that these collection agencies typically charge fees or commissions, and these fees can be added to the balance that you owe.

Though the fees vary depending on the agency and the type of loan you have, they can exceed 15% of your total balance, and can even reach up to 40% of your total balance in the case of Perkins loans. This means that if your current loan balance is $20,000, you could suddenly have between $3,000 and $8,000 in fees added to your account.

Ouch.

So how can I avoid having to deal with a collection agency?

Avoid default: The best way to avoid collection fees is to ensure that your student loan does not go into default. If you are struggling to make your monthly payments, contact the Department of Education right away to explain your situation and figure out a plan. For example, you may be able to reduce your required monthly payment amount through an income-driven repayment plan. You can find more information about how to apply for income-driven repayment here.

Check into deferment or forbearance: Depending on your situation, you may also be eligible for loan deferment or forbearance. You should look into applying for deferment or forbearance if you have returned to school, if you have an illness or financial hardship that affects your ability to make payments, or if you have recently served in the military. More information about loan deferment and forbearance is available here.

Heed warnings: If you do fail to make your required monthly payments, your loans will become delinquent and you will receive warnings from the Department of Education. Do not ignore these warnings. If you ignore them, your loans will go into default after 270 days and may be referred to a collection agency.

Monitor your credit: Additionally, if you have missed any payments on your student loans, be sure to check your credit score and get a credit report. If your credit score has been brought down by one or more missed payments, you can try writing a letter of goodwill to your loan servicer explaining your situation and politely requesting that they remove the missed payment from your credit report. You can find more information on how to write a letter of goodwill here.

But what if my loans have already been sent to a collection agency?

Take action immediately: If you receive a notice from a collection agency, this means your loans have gone into default. It is critical that you respond to the agency immediately to work out a plan for repayment. If you enter into a repayment agreement within 60 days, you will not be charged collection fees.

Try to pay back in full: If you are able to pay the full amount back, pay it immediately. This may not be an option for many people, but it is the fastest way to get your loans out of default.

Set up a rehabilitation plan: If you cannot pay the full amount, work with the collection agency to create a repayment plan—known in this case as a rehabilitation plan—that is manageable based on your current income. If the agency suggests a monthly payment amount that you feel is unmanageable, let them know that you need a lower amount, and send them documentation of your current income as proof.

Don’t miss a payment: Follow through on the rehabilitation plan! If you fail to make the payments you have agreed to, collection fees will be added to your account.

Ensure default status gets removed: After you have made nine on-time monthly payments according to the terms of your rehabilitation plan, your loan will be removed from default status. A loan can only be rehabilitated once.

Resources to help you

  • How to make a payment to a collection agency here.
  • 7 things to know if you have debt in collections here.
  • The Department of Education has a page about student loan default here.
  • The Department of Education’s page about getting out of student loan default is here.
  • The Department of Education provides contact information for the collection agencies it works with here.

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Student Loan Repayment for Health Researchers

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Student Loan Repayment

Did you know that if you’re a health professional with an advanced degree such as an MD, PhD, PsyD, or PharmD, the National Institutes of Health (NIH) may be willing to repay up to $70,000 of your student loan debt over a two-year period?

NIH, the U.S. government agency responsible for overseeing human health research, currently manages a group of eight Loan Repayment Programs (LRPs). These LRPs are used to repay lenders for the existing principal and interest on loans. The catch, si that your loans must have been obtained from a qualifying lender (more details below).

The LRPs are meant as incentives for professionals who demonstrate the commitment and expertise to pursue a career in biomedical or bio-behavioral research but still owe a substantial amount in student loan debt. NIH recognizes that the high cost of education may cause many highly qualified individuals to pursue more lucrative careers in industry or private practice rather than in research, and hopes that a reduction in student loan debt may turn the prospect of a research career into a more attractive option.

What happens when you receive an award

All awards last for two years. If you receive an award, you are contractually obligated to engage in an average of at least 20 hours of research per week, funded by a U.S. non-profit such as a university or hospital.

How much can you receive?

All awards last for two years and during that time NIH will repay 25% of your eligible education debt (up to $35,000) for each of those years. For example, if you have $40,000 of qualifying educational debt, the LRP will give you $10,000 per year (25% of your total debt), for a total of $20,000 over the two-year period. Awardees can also apply to have their awards renewed after the two years are up.

Types of LRPs

You must also choose which one of the eight LRPs you wish to apply for; this choice will depend on what type of research you are planning to pursue. You may either choose research within the NIH (Intramural) or outside the NIH (Extramural) Specific LRP areas of research include:

Are you eligible?

In order to be eligible to apply for an LRP, you must possess an advanced professional degree and have demonstrated the potential for a successful research career. Additionally, your student loan debt must exceed 20% of your base salary at the institution where you are employed at the time of the award.

Your loans must also be eligible for the repayment program.

Loans that are eligible

A majority of the loans you have likely taken out yourself from the government or a financial institution are eligible. Even loans taken out to cover cost of living while attending college may be eligible, if these loans are within a reasonable amount. According to the NIH website, the following loans are eligible:

  • Undergraduate, graduate, and health professional school tuition expenses;
  • Other reasonable educational expenses required by the school(s) attended, including fees, books, supplies, educational equipment and materials, and laboratory expenses; and
  • Reasonable living expenses, including the cost of room and board, transportation and commuting costs, and other living expenses as determined by the Secretary.

However, your loans will be ineligible if you’ve consolidated with another person such as a spouse or child. Loans will also be ineligible if you’ve merged with with non-educational loans.

Loans that aren’t eligible

  • Loans that are delinquent, in default or not on current repayment schedule.
  • Loans already paid in full, meaning you can’t get your money back retroactively for loans you’ve paid off.
  • Parent PLUS loans.
  • Loans consolidated with another individual such as spouse, child or those consolidated with a non-educational loan.
  • Loans not obtained for educational purposes, even if you used them for education, such as a home equity loan.
  • Loans not from the U.S. government, a U.S. academic institution, a U.S. commercial or chartered lending institution, such as loans from friends or family.
  • Loans without eligibility documentation that is submitted in PDF form or print outs. This documentation includes:
    • Account statements less than 30 days old. You can find a sample account statement here.
    • Promissory notes/Disclosure statements for non-consolidated loans and consolidated loans. You can find a sample note here.
    • Consolidated loans will also require a complete list of loans that were consolidated. You can find a sample note here.
    • National Student Loan Data System Aid Summary and Detail Loan information reports.
  • Loans that exceed the reasonable level for educational or living expenses. Reasonable level is determined by the standard school budget for the year in which the loan was made.
  • Loans or financial debts that you received as a result of failure to satisfy a service obligation including but not limited to: Armed Forces Health Professions Scholarship, Indian Health Service Scholarship Program and National Institutes of Health Undergraduate Scholarship Program (UGSP).
  • Loans you take out after accepting a LRP from NIH.

Learn more about loan eligibility here.

How loans get repaid when you have more than one

You probably have student loan debt from more than one source, so you may be wondering how these debts will get prioritized by the NIH? Unfortunately, you won’t be able to do what you want with the LRP money. Instead, the NIH will determine the order in which loans are repaid based on the following priorities. Unfortunately, this does mean you can’t make repayments based on interest rates or loan amount.

Priority One

Loans guaranteed by the U.S. Department of Health and Human Services, these include:

Health Education Assistance Loans (HEAL)
Health Professions Student Loans (HPSL)
Loans for Disadvantaged Students (LDS)
Nursing Student Loans (NSL)

Priority Two

Loans guaranteed by the U.S. Department of Education, these include:

Direct Loans
Stafford Loans
Consolidation Loans
Perkins Loans
Graduate PLUS Loans (on or after July 1, 2006)

Federal Family Education Loans (FFEL)
Stafford Loans
Consolidation Loans

Priority Three

Loans that have been made to you or guarnateed by your State, the District of Columbia, the Commonwealth of Puerto Rico or a territory or pession of the United States (for example, Guam).

Priority Four

Loans made to you by an academic institution

Priority Five

Private (Alternative) Educational Loans:

MEDLOANS
Private (non-guaranteed) Consolidation Loans

How to apply

You can register and start the application process by registering here on the NIH website. The application cycle is typically open from September 1 to November 15 of each year.

The application process is long, extensive and competitive. The NIH provides an outline of tips for how to write a strong application as well as a road map to follow to ensure you’re checking off all the steps.

What you’ll need

  • Letters of recommendation
  • A research plan
  • Mentor who provides a mentoring plan
  • Demonstrate your qualifications and commitment
  • Verify your research is within the scientific method of the NIH Institute or Center to which you are applying
  • Loan documentation
  • Estimate quarterly LRP repayment

Tax implications

Unfortunately, this isn’t like forgiveness programs and your LRP loan repayments will be counted as taxable income. This could, and likely will, have significant implications for your tax bill. You’ll receive a form 1099-G if you have an Extramural LRP and a W-2 if you have an Intramural LRP.

Fortunately, the LRPs do help offset this tax burden by making a tax payment to the IRS that’s equal to 39% of the annual LRP repayment. If you owe an additional amount, then it will be your responsibility to pay.

Who should apply?

So if you’re a young researcher who is interested in a career in biomedical or biobehavioral research but are concerned about whether such a career will allow you to pay off your student loan debt in a timely fashion, consider applying for an LRP. While these awards are considered to be competitive, NIH states that approximately 1500 individuals have received awards each year thus far. Additional information on eligibility and the application process can be found at the NIH Division of Loan Repayment website.

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