Federal Stafford and PLUS Loans can carry with them loan fees that are taken out of the principal prior to disbursement. Therefore, borrowers can find that the total of their loan disbursements may be slightly lower than the amount borrowed. However, repayment is based on the gross amount borrowed (not the net amount that accounts for these fees).

ORIGINATION FEE
Lenders are allowed to charge an origination fee to help defray some of the costs of loaning money when repayment may be delayed for several years. Maximum fees that can be charged are set by legislation. The 3% maximum remains in effect for Federal PLUS Loans but has been changed for Federal Stafford Loans with annual reductions to the maximum and eventual elimination of origination fees by 2010.

For many years, most lenders did not charge the origination fee to borrowers as a way to provide an up-front benefit. However, due to subsidy cuts and changes in loan legislation, most lenders have reinstituted the practice of charging fees over the past year.

For the 2008-09 academic year, Stafford borrowers are commonly being charged the new maximum of a 1% origination fee and PLUS borrowers will see up to a 3% fee taken off the top of the loan. Whereas you may have seen loan disbursements for the full gross value of the loan during recent years, you are more likely to see a reduction in the loan amount for 2008-09.

DEFAULT FEE
The guaranty agency that secures loans with lenders and schools on behalf of the Department of Education is charged a 1% default fee. Again, students did not see this fee for many years because their guaranty agency may have been paying it on their behalf.

In today's changing financial and educational loan environment, Great Lakes and most other guaranty agencies are once again passing onto borrowers this 1% default fee on Stafford and PLUS loans processed after July 1, 2008. Therefore, you may see some loans for the 2008-09 academic year reduced by a default fee on top of the origination fee and other loans processed earlier in the summer only being charged an origination fee.

DISCLOSURE STATEMENTS
With each new loan secured in your name, a disclosure statement is issued that outlines terms of the loan, amounts, fees, and disbursement dates. Carefully review and keep these statements to better understand your loan and any fees taken out before the funds are sent to UC in your name.