With dire state and federal financial straits continuing to plague higher education, student loan guarantors are losing money fast and are looking to charge students a fee in order to get back on track.
Within the past five years, students who take out loans have not been required to pay an origination fee to most of the 36 guarantors in the country. However, last month USA Funds, the largest guarantor in the country, announced that beginning in April, the agency will charge students a 0.5 percent origination fee. The following November, the agency will raise the fee to one percent.
According to Bob Murray, a USA Funds spokesperson, before May 1999 USA Funds and other guarantors charged students up to a three percent origination fee on loans. However, the numbers of students who failed to pay their loans dropped drastically and allowed guarantors to eliminate the fees altogether.
“Students became incredibly responsible about paying their loans,” said Brett Lief, president of the National Council of Higher Education Loan Programs. “This caused a surplus of funds for agencies.”
Lief estimated that borrowers saved almost $1 billion from these agencies since origination fees were waived in May 1999.
USA Funds saved their borrowers over $360 million over the past five years because of the fees they eliminated, Murray said. Unfortunately, the savings for students are starting put a strain on agencies like USA Funds.
“We and other guarantors who have waived the fee have experienced a depletion of the excess reserves,” Murray said.
The federal government requires guarantors to keep a minimum level of reserves, in case students do not pay their loans. According to Murray, USA Funds and other agencies are at risk of dropping below these minimums and are therefore reinstating origination fees for students in order to bulk up the reserves.
If an undergraduate student were to take out the maximum amount of loans for four years, the student would pay about $170 in origination fees over a four-year period.
Not all guarantors will start charging these fees.

Most University of Wisconsin students will not be charged an origination fee because The Great Lakes Higher Education Corporation, the agency the majority of students on campus borrow from, has decided not to charge an origination fee.
“The good news is virtually 100 percent of the loans on UW’s campus are guaranteed through The Great Lakes Higher Education Corporation, and they have no plan in the near future to reinstate their fee,” said Steve Van Ess, UW director of Financial Services.
However, some guarantors, including USA Funds, are petitioning the government to make it mandatory for all agencies to charge a one percent origination fee. If this happens, UW students will have to pay fees, which could add up to a lot of money. According to Van Ess, each year UW students receive over $100 million in loans. If the fee was required by law, it would cost students at UW over $1 million.
“It is a lot of money. But it is a lot of money because it is a lot of people,” Van Ess said.
Lief said students at UW will not have to worry about origination fees in the near future because the proposal mandating these fees is still in preliminary stages.