White House Aims to Eliminate Hidden Junk Fees for College Students

The president wants to eliminate student loan origination fees, among other hidden costs of attending college.
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Matthew Arrojas is a news reporter at BestColleges covering higher education issues and policy. He previously worked as the hospitality and tourism news reporter at the South Florida Business Journal. He also covered higher education policy issues as...
Published on March 22, 2024
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  • President Joe Biden stressed plans to make the cost of college more transparent for students.
  • His plan includes eliminating loan origination fees that can cost students thousands of dollars over the lifetime of the loan.
  • Biden also wants to disallow automatic textbook charges.
  • His administration took aim at financial service providers that partner with colleges and universities.

President Joe Biden wants to take hidden junk fees out of higher education and is taking action to do so.

The White House this month announced new steps to eliminate many hidden charges that can tack on hundreds — sometimes thousands — of dollars to the cost of attending college. Some of the fees Biden hopes to eliminate include student loan origination fees, college banking junk fees, and automatic charges for textbooks.

Biden's administration also restressed its commitment to forcing institutions to return unused meal plan dollars to students at the end of each academic year, which BestColleges previously reported on.

"Students aren't always provided clear and upfront opportunities to avoid fees for services they do not want," Biden said in a statement. "Obscured costs and misleading practices aren't just frustrating — they cost millions of students and borrowers money."

The White House statement did not include a timeline for implementing the changes.

The Center for Responsible Lending (CRL) celebrated the announcement.

"We applaud the administration's commitment to eliminating unnecessary junk fees in higher education and contributing to a fairer, more equitable student loan repayment system," Jaylon Herbin, director of federal campaigns at CRL, said in a statement.

"These efforts represent a crucial step toward enhancing access to education for all borrowers, including low-income borrowers in underserved communities."

Student Loan Origination Fees

Biden's fiscal year 2025 budget proposal includes a measure to eliminate student loan origination fees.

Currently, the Department of Education (ED) charges a fee whenever someone takes out a new federal student loan. According to Federal Student Aid (FSA), the origination fee for most undergraduate student loans is just over 1%, while the fee for Graduate PLUS and Parent PLUS loans is 4.2%.

Depending on the type of loan, a borrower may accumulate upwards of $1,000 in fees, especially if they attend graduate school.

The origination fee is tacked on to the loan balance, which means the fees impact interest accumulation.

"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 stated. "Parents often fare even worse, with the average parent borrower paying out an additional $2,800 or more because of these fees."

Congress would need to accept this proposal, but past actions show bipartisan support for eliminating origination fees.

A bipartisan group of U.S. senators introduced the Student Loan Tax Elimination Act in March 2023. The proposal hasn't gained traction since its introduction, but original co-sponsors in the Senate included five Democrats, two Republicans, and one independent.

Automatic Textbook Charges

ED is in the process of drafting new regulations that would limit the fees colleges and universities can charge for textbooks.

The main sticking point is automatic fees charged to students. Colleges currently can automatically charge students for textbooks and other required coursework materials. Students are often unaware of this cost, according to the White House, and don't know about their ability to decline some automatic charges.

Instead, the Biden administration wants to allow students to shop around for cheaper alternatives.

"These changes, if proposed and finalized, would provide students with real choice and the ability to use the best textbooks at the most affordable price," the White House said in a statement.

According to a BestColleges analysis, the average cost of books and supplies for a first-year college student was $1,215 for the 2021-22 academic year.

College Banking Junk Fees

ED is undergoing negotiated rulemaking to clarify that college banking products cannot include harmful fees if those products provide access to financial aid.

This rulemaking would only impact institutions that distribute federal financial aid and contract with entities to provide students with financial services. These services include deposit accounts, prepaid accounts, and student credit cards.

ED is considering a proposal that would forbid these entities from charging the following types of fees:

  • Insufficient funds fees
  • Maintenance fees
  • Closure fees

This announcement comes after a Consumer Financial Protection Bureau (CFPB) report showed that many college partnerships with banks and other financial institutions include outdated fees. The December report found that while most financial institutions have abandoned fees like overdraft fees in recent years, many tied to colleges and universities have not.

Account holders at historically Black colleges and universities (HBCUs), for-profit

colleges, and Hispanic-serving institutions (HSIs) all paid higher-than-average fees, according to CFPB.

During the 2021-2022 award year, financial institutions generated over $17.3 million in

revenue from 650,000 student bank accounts, CFPB reported.