Proposed Bill Scraps Student Loan Origination Fees, Putting More Money in Borrowers' Pockets Starting Next July

The aptly named Student Loan Tax Elimination Act aims to do one simple thing: get rid of the origination fees currently charged on Federal Direct Loans. Think of this fee like the closing cost when you take out a mortgage—it’s a percentage of the loan amount that gets shaved off the top before the money even hits your school account. This bill eliminates that upfront cost for new borrowers.

The Fine Print: What Actually Changes?

If enacted, this change kicks in for any Federal Direct Loan where the first principal payment is disbursed on or after July 1 following the law's enactment. It also applies to Federal Direct Consolidation Loans, provided the application is received on or after that same date (Section 2). This is a clean, straightforward change with very low vagueness, meaning it’s clear exactly when and how it applies.

Currently, the federal government charges a percentage fee on Direct Subsidized and Unsubsidized Loans, and a higher percentage on Direct PLUS Loans. For a student borrowing $10,000, that fee might be several hundred dollars. While the fee is relatively small, it means the borrower has to pay back interest on money they never actually received. By eliminating this fee, the bill ensures that when you sign for $10,000, you actually get $10,000 to use for tuition and expenses.

Real-World Impact: Less Debt, More Aid

This is a win for anyone starting college or grad school next year, and particularly for those taking out Direct PLUS Loans, which carry the highest origination fee. Consider a parent taking out a $25,000 PLUS Loan to cover their child’s senior year. Eliminating the fee means that parent saves hundreds of dollars right at the start, and they avoid paying interest on that fee for the next 10 or 20 years. For a working professional consolidating existing federal loans, the same relief applies—the total amount they consolidate will be lower because they won't be charged a fee for the new loan.

It’s important to note that while this is a direct benefit to borrowers, the federal government currently uses these origination fees to offset the costs of the student loan program. Eliminating the fees means the government will lose that revenue stream, which could impact how the program is funded moving forward. However, for the average 25-to-45-year-old juggling rising costs, this bill means one less mandatory fee standing between them and the education they need. It’s a clean break from a hidden cost that has long added unnecessary complexity and debt to federal student borrowing.