Reps. Smucker, Davis, and Davids Introduce Legislation to End Student Loan Tax

July 10, 2019
Press Release

WASHINGTON – Congressman Lloyd Smucker, Ranking Member of the Higher Education and Workforce Investment Subcommittee, Rep. Susan Davis (D-CA), Chairwoman of the subcommittee, and Rep. Sharice Davids (D-KS) introduced legislation to eliminate all administrative fees on federal student loans, which would save students over $1.7 billion per year.

“Today’s student loan framework isn’t working,” said Rep. Smucker. “Students and parents should fully understand the terms of the federal dollars they are borrowing. When the federal government created the Federal Direct Loan Program, it also created various fees and policies - including loan origination fees.  At the end of the day, the origination fee is only adding to a borrower’s debt load, and making the web of borrowing and repaying loans more confusing. Eliminating the origination fee is a good step towards streamlining the Federal Direct Lending Program. This will reduce the cost of borrowing, and empower students to gain a better understanding of what they are responsible for repaying.”

“Students who are about to take control of their future and invest in their higher education shouldn't be hit with hidden fees.” said Rep. Davis. “Student debt makes it harder for graduates to fully participate in our economy, like buying a home or maybe venture out on a new startup. Federal student loans are an investment in our nation’s future. We need to be sure we are getting a good return on that investment by ensuring graduates can contribute to the economy when they leave college.”

“Too many students in Kansas and across the country are struggling with student loan debt,” said Rep. Davids “We should be encouraging students to pursue higher education, not penalizing them, and we can start by eliminating these unnecessary and costly fees. This legislation will reduce the burden of student loans up front so all our students can have the opportunity to succeed.”The Fee Free Student Loan Act removes all administrative fees, which can range from one to four percent, on federal student loans.

For example, if a college student takes out an estimated $30,000 in federal loans over the course of their undergraduate education, an average origination fee of 1% (a conservative estimate) adds up to $300. 

As a result of legislation passed in 2010, all federal student loans issued through the U.S. Department of Education were taken out of the hands of private lenders and issued directly by the Department. Despite the elimination of private lenders in the federal loan process, students are still being charged administration fees on student loans. This hidden tax adds billions of dollars to student debt every year.