Section 472(12) of the Higher Education Act permits financial aid administrators to include loan fees in the cost of attendance. This can either be the actual cost of the fees to the student/parent, or the average cost.

Direct Lending schools should already know the average fees for their students. FFELP schools can obtain the average fees and the number of borrowers from each lender and combine them with a weighted sum, using the number of students receiving loans from each lender normalized by the total number of students receiving loans as the weights.

Although the actual cost would be better, since borrowing can vary significantly from student to student, practically speaking the schools do not know the actual costs when they create the student's initial award. They cannot anticipate how much of the packaged eligibility each student will borrow, which lender and/or guarantor the student will use, and whether the student will choose to borrow unsubsidized Stafford and PLUS loans.

So for a school that wants to include loan fees in the initial package, institutional averages are more reasonable.

Actual fees may be more appropriate for schools that do not include loan fees in the initial package, but instead add the fees to the package upon appeal by the student. The school can adjust the cost of education upon request by the student to include the actual fees that will be paid by the student.