California Student Aid Commission

The California Student Aid Commission and EDFUND, its student loan services auxiliary, will charge a one percent federal default fee on federal Stafford and PLUS student loans guaranteed on or after October 1, 2006. Although federally mandated changes in student loan fees take effect on July 1, 2006, the Commission and EDFUND have reaffirmed their commitment made last year to waive the fee through September 30, 2006.

The federal Deficit Reduction Act of 2005 gradually reduces the total fees paid by most borrowers while at the same time imposing the new federal default fee.

Today borrowers can be charged a total of four percent in fees — a one percent fee to the guarantor and a three percent origination fee paid to the federal government through the lenders. Beginning July 1st, the new law reduces the origination fee for Stafford loan borrowers by one percent and then 1/2 a percent each year thereafter until origination fees are eliminated in 2010, resulting in a maximum fee of one percent compared to today’s four percent.

Under the new act, a guarantor must deposit the full amount of the fee in the Federal Fund by either collecting it from the borrower or paying it from unspecified non-federal fund sources. This ensures that the federal funds held by guarantors are sufficient to cover the ongoing default-related costs of the program and support essential services that avert defaults when borrowers become delinquent on their loan payments.

"We were proud to have been one of the 1st to waive the borrower fee in 1996, saving borrowers more than $300 million in charges on their student loans since then,” said Diana Fuentes-Michel, the Commission's executive director. “While the new law mandates the federal default fee, it also benefits Stafford student loan borrowers by giving them a seventy-five percent reduction in total federal fees over 4 years."