Reforms would save students and borrowers billions in unnecessary fees and improve the college and loan repayment experience.
Today, the Biden-Harris Administration is announcing new steps to crack down on hidden junk fees as part of President Biden's agenda to lower costs for students and families paying for college. Junk fees are hidden costs or surprise fees that companies and institutions include on customer or student bills, increasing their costs.
Each year, students-including Federal student loan borrowers-incur billions in fees or additional unseen costs for unused meal account funds, using a college-sponsored credit card or banking account, paying for textbooks, or simply taking out a loan to pay for school. Additionally, students aren't always provided clear and upfront opportunities to avoid fees for services they do not want. Obscured costs and misleading practices aren't just frustrating-they cost millions of students and borrowers money.
The fees targeted in today's announcement may be imposed multiple times during the college or graduate school experience.
For example, when students first take out their federal student loans to go to college, they incur a "loan origination" fee that ranges from 1 percent for undergraduate loans to 4 percent for graduate and parent loans. This can tack on hundreds or thousands of dollars onto their debts.
Additionally, many colleges directly offer students financial products through affiliated banks, like student banking accounts and credit cards. Students trust and rely on their schools' offering of these products; in some cases, these products help students receive student aid. However, reports have found that these products often assess high and unusual fees that are more costly than widely available options and can erode the purchasing power of students' financial aid.
Colleges are also currently allowed to automatically charge students for textbooks if the charge meets certain criteria. Students are often unaware of this hidden cost or their ability to decline the charge, preventing them from shopping around for a better price. Further, some colleges keep unspent student meal plan credit balances, instead of providing students with a refund.
The actions announced today are part of the Biden-Harris Administration's strategy to lower costs and make higher education more affordable and accessible for students by creating more transparent and student-friendly policies. These actions include:
- Eliminating the Student Loan Origination Fees: The President's Fiscal Year 2025 Budget Proposal calls on Congress to end student loan origination fees. According to the Office of Management and Budget, approximately 7 million undergraduate, graduate, and parent borrowers pay origination fees of 1 to 4 percent of the total amount each federal student loan is charged to every borrower who takes out federal money to help get an education. These fees are a relic of an era when the government compensated private lenders to issue these loans. Today, this fee is nothing more than a tax imposed on students by the government, costing consumers more than $1 billion annually. Adding insult to injury, these fees are added to loan balances and subject to interest for the life of the loan. 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. Parents often fare even worse, with the average parent borrower paying out an additional $2800 or more because of these fees. The Biden-Harris Administration is calling on Congress to pass the President's 2025 Budget proposal and eliminate it.
- Putting an End to College Banking Junk Fees: The Department of Education (ED) is undergoing negotiated rulemaking to clarify that college banking products that provide students access to their financial aid cannot include harmful fees. A recent report by the Consumer Financial Protection Bureau (CFPB) highlighted how banks are imposing millions in high and unusual fees on more than 650,000 student account holders with college banking accounts, with account holders at Historically Black Colleges and Universities, for-profit colleges, and Hispanic-servicing institutions paying higher-than-average fees. The report found that these junk fees no longer reflect prevailing market practices as more banks have phased them out - contributing to the $5.5 billion decrease in overdraft and bounced check fees for all consumers since 2019. To address the problem, the Department is formally considering regulations that would prohibit entities that contract with institutions of higher education for the disbursement of Title IV funds from charging particular fees that harm students, such as insufficient funds fees or maintenance and closure fees. These changes, if proposed and finalized, would be included under ED's cash management regulations, which are currently in rulemaking.
- Eliminating Automatic Charges for Textbooks: The Department is undergoing negotiated rulemaking to reduce costs incurred by students in addition to tuition in higher education by ending the practice of automatic billing on tuition for textbooks. Under the draft proposal, students would now need to authorize a charge on their tuition bill for course materials. Competitive markets provide consumers choice and value, but automatic charges for textbooks and course materials leave students with little ability to meaningfully shop around for better prices or to utilize free and open-source textbooks. 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.
- Stopping Colleges from Pocketing Students' Leftover Meal Plan Dollars: The Department is formally considering regulations to require institutions of higher education to return any unused funds from Federal financial aid recipients' meal plans back to students. Students are often required to purchase meal plans from institutions, and institutions can credit financial aid funds toward meal plan expenses that can be used like cash to also cover expenses at campus grocery stores and food courts, often referred to as "flex dollars." At the end of a term, institutions can take any remaining funds without returning unused funds. This can create a financial penalty for students as they either lose the money they are entitled to, or are forced to spend remaining funds at the end of the term on items they might not otherwise feel they need.
These actions build upon important steps to increase transparency and improve the experience for students through final regulations issued in late 2023 that go into effect on July 1, 2024. Recently finalized student- and borrower-friendly policies include:
- Increasing College Cost Transparency: The Department issued final regulations to require that institutions provide the most detailed information ever about the cost of college, including costs that students and families are likely to pay out-of-pocket, before students enroll in a college and accept financial aid. The Department is also requiring that institutions provide adequate financial aid communications and counseling to students. This will help to increase cost transparency and decision-making for students and families. Under this rule, institutions of higher education may have their participation in Federal student aid programs limited, suspended, or terminated if they fail to administer their programs consistently with these new rules.
- Preventing Schools from Withholding Student's Transcripts: Recently issued final regulations also restrict colleges from withholding course credits paid for with Federal money. Previously, institutions of higher education could withhold transcripts from students until their accounts were fully paid. Withholding transcripts can keep students from transferring to another institution, enrolling in another program upon graduation, and securing a job. Under the Department's new rule, colleges will no longer be allowed to withhold transcripts over unpaid debts if the student paid for some of their courses with Federal student loans or other Federal financial aid.
- Holding Schools Accountable as Lenders. CFPB clearly communicated to institutions that when they act as lenders by offering tuition payment plans and other credit to students, they will be held accountable if they violate federal consumer financial protection laws. A recent CFPB report found some colleges charging late fees over $200, using troubling debt collection practices including transcript withholding, removal from campus meal plans, and providing unclear and inconsistent product disclosures.
- Reducing the price of textbooks by investing in freely available textbooks. The Department's Open Textbooks Pilot Program provides grants for institutions to create and use their own free textbooks and other open-source course materials. In fiscal year 2021 through 2023, the Department awarded slightly under $30 million to 17 grantees for this purpose. The total federal investment in the Open Textbooks Pilot Program through 2023 is $47 million. The President's Fiscal Year 2025 Budget Proposal calls for funding the Open Textbooks Pilot Program.
- Establishing the most effective safeguards ever against unaffordable debt or insufficient earnings for postsecondary students. This includes landmark regulations finalized in fall 2023 to hold for-profit colleges and career education programs accountable for failure to deliver for students. Approximately 700,000 students a year will now be protected from career training programs that leave graduates with high debts, low earnings, and poor career prospects.
- Establishing a new framework holding student loan servicers accountable. The Department has returned student loan borrowers to repayment following the pandemic-era pause on payments and has worked to ensure borrowers are not harmed by servicer errors in doing so, including by errors identified in a recent report released by the CFPB.
These actions build upon the Administration's efforts to protect students and borrowers. The Biden-Harris Administration will continue its efforts to make higher education more affordable and accessible, as well as to eliminate hidden, surprise, and junk fees and put cash back in the pockets of Americans.
