How this calculator works
Student loans often carry an origination fee, a percentage deducted by the lender. The fee can be handled in two ways. If it is added to the balance, you receive the full loan amount but repay the loan plus the fee with interest. If it is deducted, your balance is the stated loan amount but you receive less cash up front. Either way the fee raises the effective cost of borrowing above the quoted interest rate. This calculator reports the fee, the amount financed, the cash you receive, the level payment, total payments and total interest. It assumes a fixed rate, equal monthly payments and no deferment or income-driven terms.
Formula
Fee = loan amount x origination fee rate. If the fee is financed, amount financed = loan + fee and amount received = loan. If it is deducted, amount financed = loan and amount received = loan - fee. Payment = P x i / (1 - (1 + i)^-n) with i = annual rate / 12. Total paid = n x payment and interest = total paid - P.
Worked example
A $20,000 loan at 6.5% over 120 months with a 1.057% fee has a fee of $211.40. If the fee is added to the balance, $20,211.40 is financed and the payment is $229.50. If the fee is deducted instead, $20,000 is financed and repaid with a payment of $227.10, but the borrower only receives $19,788.60.
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Frequently asked questions
Can I avoid the origination fee?
Some loans have no fee, such as certain subsidised programmes or loans from some lenders. Compare the APR, not just the interest rate, because a fee makes the true cost higher.
Does the fee depend on the loan type?
Yes. In the United States, Direct Unsubsidised and Direct PLUS loans have historically carried different origination fees, and the rates change with legislation. Use the figure on your disclosure.
Is the payment the same under both fee treatments?
Not exactly. Financing the fee raises the balance and therefore the payment and the total interest. Deducting the fee keeps the payment lower but leaves you with less cash, so the effective cost is still higher than a fee-free loan.