U.S. Senators Jim Banks (R-Ind.) and Tim Kaine (D-Va.) have introduced bipartisan legislation aimed at lowering the cost of federal student loans by eliminating origination fees charged to borrowers.
The Student Loan Tax Elimination Act would amend the Higher Education Act to repeal origination fees on all federal student loans. Companion legislation is being led in the U.S. House by Rep. Lloyd Smucker (R-Pa.) and Rep. Sharice Davids (D-Kan.).
Supporters of the bill describe origination fees as a “hidden tax” that inflates the cost of borrowing for students and families. Senator Banks said the legislation would provide a fairer deal for students paying for college, while Senator Kaine said student loan debt continues to strain families and the broader economy.
Melanie Storey, president and CEO of the National Association of Student Financial Aid Administrators, said eliminating origination fees would improve transparency and ensure federal loans reflect only actual educational costs.
The bill has been endorsed by NASFAA, the American Psychological Association, and the AccessLex Institute.
Federal student loan origination fees date back to the Higher Education Act of 1965, which created a bank-based lending system. Although federal student loans were brought fully under the Department of Education in 2010, the fees remained. Currently, Direct Subsidized and Unsubsidized loans carry a fee of just over one percent, while PLUS loans carry a four percent fee.
According to NASFAA, the federal government has collected more than $6.7 billion in origination fees over a five-year period. Advocates argue that eliminating the fees would help reduce borrowing costs at a time when college expenses continue to rise.
