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White House plans to slash ‘junk fees’ on student loans

President Joe Biden announces the cancellation of an additional $1.2 billion in student loan debt for about 153,000 borrowers, at meeting with community at Culver City Julian Dixon Library in Culver City, CA.

Irfan Khan | Los Angeles Times | Getty Images

The White House is talking up its actions to reduce the expenses burdening students, including moving to end origination fees on student loans.

The “reforms would save students and borrowers billions in unnecessary fees and improve the college and loan repayment experience,” according to a statement from the Biden administration released on Friday.

While most private lenders have done away with student loan origination fees, the federal government still charges them. Federal student loan borrowers can face expenses of 1% to 4% of their total borrowing amount. President Joe Biden’s 2025 budget, released earlier this week, calls for the end of these fees.

The White House said on Friday it considers these expenses to be “junk fees,” defined as “hidden costs or surprise fees that companies and institutions include on customer or student bills, increasing their costs.”

Consumer advocates praised Biden’s efforts.

“By eliminating origination fees on federal student loans, borrowers should be able to borrow less to cover their costs,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

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Around 7 million undergraduate, graduate and parent student loan borrowers pay origination fees, which the White House described as “nothing more than a tax imposed on students by the government, costing consumers more than $1 billion annually.”

A typical teacher or nurse taking out federal loans for undergraduate and graduate degrees will pay $1,000 or more over the life of their loan because of these fees, the White House said in Friday’s statement.

“Parents often fare even worse, with the average parent borrower paying out an additional $2,800 or more,” it said.

Ultimately, the elimination of these fees would require an act of Congress, said higher education expert Mark Kantrowitz.

But, he said: “There is bipartisan support for such a change.”

End to college bank fees, textbook charges

The White House on Friday also said that the U.S. Department of Education is undergoing negotiated rulemaking to curb the “harmful fees” on college accounts charged by certain banks. For example, the department is looking to ban financial institutions that contract with colleges from charging insufficient fund and closure fees.

Between 2021 and 2022, financial institutions generated more than $17.3 million in revenue from more than 650,000 student bank accounts, the Consumer Financial Protection Bureau found. These banks may hit students with overdraft fees as high as $36, among other charges, even as many other financial institutions have ended such practices.

Account holders at historically Black colleges and universities, or HBCUs, and Hispanic-servicing institutions paid especially high fees, on average, according to the CFPB.

The Education Department is also looking to end automatic billing on tuition for textbooks, the White House said.

“Competitive markets provide consumers choice and value, but automatic charges for textbooks and course materials leave students with little ability to meaningfully shop around for better prices or to utilize free and open-source textbooks,” the Biden administration said.

In addition, it is considering requiring colleges to return any unused financial aid funds for meal plans to students.