Posted Date: March 15, 2013

Author:  David A. Bergeron, Acting Assistant Secretary, Office of Postsecondary Education

Subject: Update: Impact of Sequestration on the Title IV Student Financial Assistance Programs

On March 1, 2013, we posted an Electronic Announcement that provided the financial aid community with general information on how a sequester would impact the Federal Title IV student financial assistance programs. Because Congress did not act, the sequester is now in effect. The March 1, 2013 Electronic Announcement noted that we would be providing additional information and guidance to postsecondary institutions as more information became available. This Electronic Announcement is the first in what likely will be a series of sequester-related communications. Information is presented separately for each Title IV program in the same order as in the March 1, 2013 Electronic Announcement.

Federal Pell Grant Program

As stated in the March 1, 2013 Electronic Announcement, the Pell Grant Program is specifically exempted from the effects of the sequester. Both the 2012-2013 and the 2013-2014 payment schedules, as posted to IFAP, remain in effect without any changes.

FWS and FSEOG Programs

Tentative funding levels and corresponding worksheets for the Campus-Based Programs for the 2013-2014 award year were provided to institutions on January 25, 2013. Institutions were notified that the final award allocations might be delayed or revised depending upon the outcome of the sequester/appropriations process. At this time we have no additional information on the sequester’ s impact on an institution’s 2013-2014 Federal Work-Study (FWS) and Federal Supplemental Educational Opportunity Grant (FSEOG) allocations. Additional information will be provided as we prepare to release 2013-2014 campus-based final allocations later this spring. We recommend that institutions not rely on any estimates of allocation amounts until official amounts are released by the Department.

Direct Loan Programs

As noted in the March 1, 2013 Electronic Announcement, the terms of the sequester increase the loan fees charged to Direct Loan borrowers. We now have the specific amounts of the loan fee increases.

  • The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is increased from 1.0 percent to 1.051 percent. For example, the fee on a $5,500 loan will increase by $2.80 from $55.00 to $57.80.

  • The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is increased from 4.0 percent to 4.204 percent. For example, the fee on a $10,000 PLUS Loan will increase by $20.40 from $400.00 to $420.40.

The Department began sending email (and where necessary, paper) notifications on March 9, 2013 to student and parent borrowers who, based upon origination records submitted by institutions to the Common Origination and Disbursement (COD) System, have a Direct Loan with a first disbursement after March 1, 2013. The text of these notifications is provided in attachments to this announcement. We remind institutions that they must comply with the loan cancellation requirements of the regulations at 34 CFR 668.165(a)(4) if a student or parent requests that all or a portion of a loan be cancelled.

As was also noted in the March 1, 2013, Electronic Announcement, the Department’s Federal Student Aid (FSA) office is preparing for distribution to institutions (and their software vendors) detailed information on when institutional systems must begin using the increased loan fee amounts when reporting to COD. We will provide sufficient implementation lead time for those changes. Therefore, as noted in the March 1, 2013 Electronic Announcement, institutions should continue to award and disburse Direct Loans and submit Direct Loan records to COD using the 1 percent and 4 percent loan fee amounts.

At this time we can provide the following information:

  • Institutions will not be responsible or liable for the difference between the 1.0 percent and 4.0 percent fees that they will continue to use until the Department issues further guidance, and the increased fee amounts that will be implemented at a later date.

  • If necessary, the Department will work with borrowers to collect any difference between the fee that was applied to the disbursement of their Direct Loan and the increased fee required by the sequester. Institutions will not have any responsibility for the collection of this difference. We will, of course, keep institutions informed of our plans.

Iraq-Afghanistan Service Grants

As noted in the March 1, 2013 Electronic Announcement, the Iraq-Afghanistan Service Grant Program is subject to an across-the-board budget cut under the sequester. Institutions must comply with the following guidance when awarding and disbursing Iraq-Afghanistan Service Grants.

  • The reductions apply only when the first disbursement of an Iraq-Afghanistan Service Grant award is made after March 1, 2013. Second or other subsequent disbursements of an Iraq-Afghanistan Service Grant award for which the first disbursement was made on or before March 1, 2013 are not subject to the sequester required reduction.

  • Iraq-Afghanistan Service Grant awards that are subject to the sequester, require reductions of 37.8 percent from the award amount for which the student would otherwise have been eligible, not from the Scheduled Award amount of $5,550. For a student whose award would have been at the 2012-2013 Scheduled Award amount of $5,550, the institution must reduce the award by $2,097.90 ($5,550 x 37.8%), resulting in an award of $3,452.10. For the 2013-2014 award year, for a student whose award would have been at the 2013-2014 Scheduled Award amount of $5,645, the institution must reduce the award by $2,133.81 ($5,645 x 37.8%), resulting in an award of $3,511.19.

    A student who would have received less than the full Scheduled Award, because the student is enrolled only for a portion of the award year or is enrolled less than full-time or both, would have the reduction based on that lesser amount. For example, for a student whose 2012-2013 Iraq-Afghanistan Service Grant would have been $2,081.50 because the student was enrolled three-quarter time for just one semester, the institution must reduce the award by $786.81 ($2,081.50 x 37.80%), resulting in an award of $1,294.69. Similarly, for a student whose 2013-2014 Iraq-Afghanistan Service Grant will be $2,823 because the student will be enrolled half-time for both semesters, the institution must reduce the award by $1,067.09 ($2,823 x 37.8%), resulting in an award of $1,755.91.

    Note: Institutions with systems that require award amounts to be in whole dollars must round down to the next lowest dollar. If an institution’s system requires payment period amounts to be in whole dollars the institution may round a payment period amount up only if there will be one or more other payment periods where the amount will be rounded down.

TEACH Grants

As noted in the March 1, 2013 Electronic Announcement, the TEACH Grant Program is subject to an across-the-board budget cut under the sequester. Institutions must comply with the following guidance when awarding and disbursing TEACH Grants.

  • The reductions only apply when the first disbursement of a TEACH Grant award is made after March 1, 2013. Second or other subsequent disbursements of a TEACH Grant award for which the first disbursement was made on or before March 1, 2013 are not subject to the sequester required reduction.

    TEACH Grant awards that are subject to the sequester, require reductions of 12.6 percent from the award amount for which the student would otherwise have been eligible, not from the Scheduled Award amount of $4,000. Therefore, a student who was eligible to receive the full TEACH Grant Scheduled Award amount of $4,000 would have the award reduced by $504.00 ($4,000 x 12.6%), resulting in an award amount of $3,496.00 However, a student who would have received less than the $4,000 Scheduled Award amount because the student is enrolled only for a portion of the award year or is enrolled less than full-time or both would have the reduction based on that lesser amount. For example, for a student whose TEACH Grant award would have been $1,500 because the student was enrolled three-quarter time for just one semester, the institution must reduce the award by $189.00 ($1,500 x 12.6%), resulting in an award of $1,311.00.

    Note: Institutions with systems that require award amounts to be in whole dollars must round down to the next lowest dollar. If an institution’s system requires payment period amounts to be in whole dollars the institution may round a payment period amount up only if there will be one or more other payment periods where the amount will be rounded down.

As noted, we will provide additional updates as more information becomes available. We thank you for your patience and understanding.

Attachments/Enclosures:

Loan Fee Notification to Direct Subsidized/Unsubsidized Loan Borrowers in PDF Format, 66KB, 1 Page

Loan Fee Notification to Direct PLUS Loan Borrowers in PDF Format, 65KB, 1 Page

   

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