Publication Date: April 23, 2015

DCL ID:  GEN-15-07

Subject: FY 2016 Sequester Required Changes to the Title IV Student Aid Programs

Summary: This letter provides information regarding sequester required changes to loan fees in the Direct Loan Program where the first disbursement is on or after October 1, 2015. It also provides information on sequester required reductions to Iraq-Afghanistan Service Grant and TEACH Grants awards where the first disbursement is on or after October 1, 2015.

Dear Colleague:

In previous guidance we provided institutions with information on the effect of the across-the-board budget cuts known as sequestration on the Title IV student financial aid programs. Because the Budget Control Act of 2011 (the sequester law) remains in effect, sequester-required changes for Federal fiscal year 2016 (FY 2016) will be required effective October 1, 2015. Below we provide information on the implementation of sequester-required changes to Direct Loan fees and sequester-required changes in the percentage reduction that institutions must apply to awards in the Iraq Afghanistan Service Grant and TEACH Grant programs. Note that for FY 2016, Direct Loan fees will be decreased by 0.005 percent for Direct Subsidized/Unsubsidized Loans and 0.020 percent for Direct PLUS Loans. The percentage rate of reductions to awards in the Iraq Afghanistan Service Grant and TEACH Grant programs will decrease by 0.50% when compared to FY 2015.

Direct Loan Program

The terms of the sequester decrease the loan fees charged to Direct Loan borrowers for Direct Subsidized, Direct Unsubsidized and Direct PLUS loans. For loans where the first disbursement is made on or after October 1, 2015 and before October 1, 2016 –

  • The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is 1.068%. For example, the fee on a $5,500 loan will be $58.74.

  • The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is 4.272%. For example, the fee on a $10,000 PLUS Loan will be $427.20.

The following chart shows the sequester-required loan fees for FY 2015 and FY 2016.

Direct Loan Fees
for FY 2015 and FY 2016
Loan Type Impacted Loans Loan Fee
Percent
Fee Example
Direct Subsidized
Loans and Direct
Unsubsidized
Loans
FY 2015
First disbursed on or after
October 1, 2014 and before
October 1, 2015
1.073 $59.01 on a
$5,500 loan
FY 2016
First disbursed on or after
October 1, 2015 and before
October 1, 2016
1.068 $58.74 on a
$5,500 loan
       
Direct PLUS
Loans (Parent
and Grad/Prof
Student
FY 2015
First disbursed on or after
October 1, 2014 and before
October 1, 2015
4.292 $429.20 on a
$10,000 loan
FY 2016
First disbursed on or after
October 1, 2015 and before
October 1, 2016
4.272 $427.20 on a
$10,000 loan
       
Loan fee calculations that result in more than two decimal places must be truncated (not rounded) to two digits after the decimal point (cents).

As a reminder, the amount of the loan fee for a loan is determined by the date of the first disbursement of the loan. Any subsequent disbursements, even if made on or after the relevant October 1, have the same loan fee percentage that applied to the first disbursement of that loan.

IMPORTANT: Beginning on Tuesday, April 28, 2015, institutions may begin submitting Direct Loan origination records to COD where the first disbursement will be on or after October 1, 2015. Of course, those origination records must have the correct loan fees as provided in this letter.

Iraq-Afghanistan Service Grants

An Iraq-Afghanistan Service Grant where the first disbursement is on or after October 1, 2015 and before October 1, 2016 requires a reduction of 6.8 percent from the award amount for which the student would otherwise have been eligible (i.e., the maximum Federal Pell Grant award amount for the relevant award year).

The following chart shows the FY 2015 and FY 2016 sequester required Iraq-Afghanistan Service Grant Program reductions as they apply to the 2014-2015 and 2015-2016 award years.

Iraq-Afghanistan Service Grant Awards
Award Year Impacted Awards Statutory Award Amount Reduction from Statutory Award Amount Dollar Reduction Amount Adjusted Award Amount
           
2014-2015 First disbursed prior to October 1, 2014 (FY 2014 Sequester) $5,730 7.20% $412.56 $5,317.44
First disbursed on or after October 1, 2014 and before October 1, 2015 (FY 2015 Sequester) $5,730 7.30% $418.29 $5,311.71
           
2015-2016 First disbursed on or after October 1, 2014 and before October 1, 2015 (FY 2015 Sequester) $5,775 7.30% $421.57 $5,353.43
First disbursed on or after October 1, 2015 and before October 1, 2016 (FY 2016 Sequester) $5,775 6.80% $392.70 $5,382.30
           
Schools with systems that require award amounts to be in whole dollars must ensure that overall award amounts round down to the next lowest dollar.

TEACH Grants

A TEACH Grant where the first disbursement is on or after October 1, 2015 and before October 1, 2016 requires a reduction of 6.8 percent from the award amount for which the student would otherwise have been eligible.

The following chart shows the FY 2015 and FY 2016 sequester required TEACH Grant Program reductions as they apply to the 2014-2015 and 2015-2016 award years.

TEACH Grant Awards
Award Year Impacted Awards Statutory Maximum Scheduled Award Amount Percentage Reduction from Statutory Award Amount Dollar Reduction Amount from Maximum Award Amount Adjusted Maximum Award Amount
           
2014-2015 First disbursed prior to October 1, 2014 (FY 2014 Sequester) $4,000 0.89% $35.60 $3,964.40
First disbursed on or after October 1, 2014 and before October 1, 2015 (FY 2015 Sequester) $4,000 7.30% $292.00 $3,708.00
           
2015-2016 First disbursed on or after October 1, 2014 and before October 1, 2015 (FY 2015 Sequester) $4,000 7.30% $292.00 $3,708.00
First disbursed on or after October 1, 2015 and before October 1, 2016 (FY 2016 Sequester) $4,000 6.80% $272.00 $3,728.00

Questions related to the implementation of the sequester-required Direct Loan fees should be addressed to the COD School Relations Center at 800-848-0978 for Direct Loans. You may also e-mail CODSupport@ed.gov.

General questions about Title IV sequester issues should be addressed to Federal Student Aid’s Research and Customer Care Center (Care Center) staff. Staff is available Monday through Friday between the hours of 9:00 a.m. and 5:00 p.m. (Eastern Time) at 800-433-7327. After hours calls will be accepted by an automated voice response system. Callers leaving their names and phone numbers will receive a return call the next business day. Alternatively, you may e-mail the Care Center at fsa.customer.support@ed.gov.

We thank you for your continued patience and understanding as together we ensure that the terms of the sequester law are enforced.

Sincerely,

Jeff Baker
Federal Student Aid
U.S. Department of Education

   

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