Congresswoman Susan Davis (D-San Diego) introduced legislation to eliminate all administrative fees on federal student loans. By ending these fees, students would save over $1.5 billion per year.
“The debt saddling students when they leave college hurts not only the student but impacts our economy,” said Davis, a senior member of the House Committee on Education and the Workforce. “Massive student debt makes it harder for graduates to buy a home or maybe venture out on a new startup. Federal student loans are an investment in our nation’s future. We need to be sure we are getting a good return on that investment by ensuring graduates can contribute to the economy when they leave college.”
Davis' Fee Free Student Loan Act removes all administrative fees, which can range from one to four percent, on federal student loans. A parent taking out a $10,000 federal Parent PLUS loan to help send their child to college with a four percent fee would pay $400 up front.
As a result of the passage of the Health Care and Education Reconciliation Act of 2010, all federal student loans issued by the Department of Education were taken out of the hands of private lenders and issued directly by the Department. Despite the elimination of private lenders in the federal loan process, the Department of Education has continued to charge administration fees on student loans. This hidden tax adds billions of dollars to student debt every year.
In addition, under sequestration, these fees are scheduled to rise and become even more burdensome in the coming years unless Congress acts.
Recent reports show student loan debt has surpassed $1 trillion nationally. Davis has been taking steps to alleviate this problem. In March, Davis introduced legislation that would require extra payments on student loans go toward the principal of the loan first.
The Student Loan Fair Prepayment Act would ensure that extra payments are applied first to the principal of the highest interest-rate loan, unless the borrower requests otherwise. This technical change would save borrowers a significant amount and help them pay off their loans more quickly.