Can a School Use Actual Or Average Loan Fees In the Cost Of Attendance?

The school can use actual or average loan federal loan fees as long as the school establishes written policies and procedures addressing how it calculates and includes loan fees in the cost of attendance (COA). See Section 472 of the Higher Education Act of 1965, (HEA), as amended, [20 USC 1087LL].

The school must include a loan fee allowance for all federal educational loans—that is, for any Direct Loans actually borrowed by the student or the dependent student’s parent. Schools may not include loan fees for nonfederal, conventional educational loans.

Direct Loan Fees
For federal educational loans, the school may use the actual loan fee amount or an average based on the same type of loan borrowed by the student or dependent student’s parent for attendance at the school. The school’s method(s) for including loan fees should be:

• Documented in the school’s policies and procedures; and
• Applied consistently.

Average Fees: There are three methods for calculating an average loan fee allowance:

1. Calculate a single average by multiplying the average loan amount borrowed by the school’s students by the fee percentage.
2. Calculate separate loan fee averages for undergraduate and graduate students. (This is the recommended method since the averages more accurately reflect loan fee amounts associated with these two categories of students.)
3. Calculate an average loan fee amount for each annual loan limit (e.g., freshman, sophomore, graduate, etc.).

If the school uses an average loan fee amount, any reduction in the requested loan amount would not affect the loan fee amount included in the COA. If the student's loan amount changes, that does not change the value of the average. The point of using an average is so you don’t have to adjust the average amount later.

Of course, if the student declines the loan, the average loan fee cannot be allowed to mask an overaward. According to guidance NASFAA has received from the U.S. Department of Education (ED), you are not required to remove the loan fees unless there is a potential overaward. If the student declined the loan and there is a potential overaward, you must remove the average loan fee from the COA and make any other necessary adjustments to resolve the overaward.

Actual Fees: By definition, the use of actual fees means that if the loan amount changes, the actual fee changes. However, according to ED, if an actual fee allowance is used and a lower loan amount is requested, the school is not required to recalculate fees but must ensure the allowance does not mask an overaward. In this case, you only have to adjust the actual loan fee amount if there is a potential overaward. Although, it may be a good practice to always adjust the actual fee amount when a lower loan amount is requested so you don’t miss an overaward if other estimated financial assistance (EFA) is received at a later date. Likewise, if the loan is declined, the school must ensure the allowance does not mask an overaward.

Additional Note About PLUS: If a parent chooses to borrow a parent PLUS rather than having the student borrow, the COA should only include PLUS fees. Even though the additional PLUS fees may increase the student’s Direct Loan eligibility, this increase may be met with PLUS funds. This applies to both parent PLUS and graduate PLUS.

Nonfederal Educational Loan Fees: Effective with the 2023-24 award year, schools may not include in the COA loan fees for nonfederal, conventional alternative, or private student loans borrowed by the student. (HEA 472(a)(13); 20 USC 1087LL]).

See also NASFAA Monograph: Developing the Cost of Attendance.