Reviewing your student loan options can be intimidating. Your loan agreement will list a variety of terms, such as disbursement or origination fees and the loan annual percentage rate (APR), and these terms can affect your overall repayment cost.
Which is more important, the loan’s fees or the interest rate? Which has a bigger impact on your loan repayment depends on how the loan is structured, how much you borrow, and the fees and rates the lender charges. Understanding how these fees and charges work will help you make an informed choice.
Student Loan Rates
Your loan’s APR is a percentage reflecting how much you pay in interest over one year. Federal student loans always have fixed interest rates, so the rate never changes. With private loans, the rates can be fixed or variable. With a variable-rate loan, the rate changes along with market conditions, so it can increase over time.
The below table highlights current APRs:
| Fixed APR | Variable APR | |
| Federal Direct Subsidized loan | 6.39%* | Not applicable |
| Federal Direct Unsubsidized (Undergraduate)loan | 6.39%* | Not applicable |
| Federal Direct Unsubsidized (Graduate or professional) loan | 7.94%* | Not applicable |
| Federal PLUS loan | 8.94%* | Not applicable |
| Private undergraduate loan | As low as 2.99% | As low as 4.88% |
| Private graduate loan | As low as 2.99% | As low as 4.88% |
| Private parent loan | As low as 2.99% | As low as 4.88% |
| *Rate for loans disbursed between July 1, 2025 and June 30, 2026 | ||
The higher the APR, the more you’ll pay in interest over the life of the loan. For example, consider these two loans:
- Loan #1: You borrow $5,000 at 3.00% APR with a 10-year term. Your monthly payment is about $48 per month. Over the life of your loan, you pay a total of $5,794.
- Loan #2: You borrow $5,000 at 6.00% APR with a 10-year term. Your monthly payment is about $56 per month.
Despite the loans starting with the same principal, you’ll pay about $900 more in interest on the second loan thanks to the higher APR.
With larger balances and longer repayment terms, the difference in total repayment cost can become even more significant. A higher rate can cause you to pay thousands more over the duration of the loan.
Common Student Loan Fees
Fees vary by loan type and lender, but these are common student loan fees to watch out for:
Origination or Disbursement Fees
Origination or disbursement fees are an upfront fee that the lender deducts from the loan amount before it disburses the loan funds. For example, say you take out a loan for $10,000 and the lender charges a 4% disbursement fee. The lender would withhold $400 for the fee, and you’d receive $9,600 in loan funds. But, you’d owe — and interest would accrue — on the $10,000 loan principal.
Private student loans rarely have origination fees, but these fees apply to all federal student loans. However, the fee varies based on loan type:
- Federal Direct Subsidized and Unsubsidized Loans: 1.057%
- Federal PLUS Loans: 4.228%
Late Fees
If you miss a payment due date, the lender will likely charge a late fee. The fee is usually a percentage of the late payment amount, up to a set maximum. For example, a lender may charge 5% of the late payment amount, up to a maximum of $25. If your monthly payment is $200, that means you’d pay $10 in late fees.
Returned Payment Fees
A returned payment fee applies if your bank rejects a payment because you don’t have enough money in your account to cover the transaction. The fee varies by lender, but it’s usually $20 to $30.
[Important: Neither federal student loans nor private loans charge prepayment penalties, so you can pay off your loan early without worrying about added charges.]
Which Is Better: Fewer Fees or Lower Rates?
When you compare student loans, it may be tempting to just pick the “no fee” option or the loan with the lowest APR. But which is better for you — fewer fees or a lower rate — depends on several factors:
- Your credit: While federal student loans have the same APR for all borrowers, private student loans base your APR on your credit history. To qualify for the lowest rates, you’ll need very good to excellent credit (or have a co-signer apply with you).
- Loan amount: How large of a loan you take out can affect your fees. Since origination fees are a percentage of the amount of the loan, a higher balance can cause you to pay a higher amount in origination fees, and a higher fee may negate the value of a lower APR.
- Loan term: The default repayment term for federal student loans is 10 years, while private loans can have terms between five and 15 years. The longer the term, the more time interest will accrue, so you may end up paying more than if you opted for a higher rate with lower fees.
Comparing Loan Options
To illustrate the different role interest and fees play, consider these examples; for these scenarios, we assume a $10,000 principal for each loan.
| Loan #1 | Loan #2 | |
| Amount Borrowed | $10,000 | $10,000 |
| Origination Fee | 1.057% ($105.70) | $0 |
| Interest Rate | 6.5% | 7.00% |
| Repayment Term | 10 Years | 10 Years |
| Total Interest | $3,625.76 | $3,933.02 |
| Total Cost of Loan | $13,625.76 | $13,933.02 |
In general, a lower APR is more useful than a loan without fees since origination fees tend to be relatively low, and they’re a one-time charge. By contrast, the interest rate affects the loan for the entirety of the repayment term.
Ultimately, the best loan option is one that fits your budget, repayment goals, and cost of attendance. Take the time to review your loan options and compare rates and fees so you can fully understand the cost of borrowing money for college; your future self will thank you.
