Policy Frequently Asked Question: Lender Buydown of Grad-PLUS Federal Default Fee

Are the lenders allowed to pay the federal default fee on behalf of graduate students for Grad PLUS loans?

Federal Family Education Loan Program lenders are permitted to pay the federal default fee on behalf of a PLUS loan borrower, either a parent or graduate/professional PLUS borrower. Although, federal law requires lenders to charge the origination fee to all PLUS-loan borrowers, there are no similar provisions for the federal default fee.

USA Funds^® has announced that, for Federal Stafford and Grad PLUS loans guaranteed on or after Feb. 1, 2008, USA Funds will subsidize from its nonfederal resources one-half of the 1-percent federal default fee, when the originating lender buys down the other half of the fee. USA Funds also provides information about the steps that lenders need to take to participate in the federal-default-fee buydown. Lenders must act by Jan. 3 for their fee buydown to take effect Feb. 1.