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ED provided additional clarification on the impact of sequestration

Did You Know?  ED provided additional further clarification on the impact of sequestration.  Specifically, ED states that the impending increased loan origination fee percentages will be as follows:

  • Direct Subsidized and Unsubsidized Loans:  The origination fee is increasing from 1.0 percent to 1.051 percent.  An example of how this will be felt by borrowers is that the fee on a $5,500 loan will be increased by $2.80, resulting in an origination fee of $57.80 vs. a $55.00 origination fee on the same loan amount currently.
  • Direct PLUS Loans (Parent PLUS and Graduate PLUS Loans):  The origination fee is being increased from 4.0 percent to 4.204 percent.  The impact of this increase on a $10,000 PLUS Loan will result in an increase of $20.40 in the loan origination fee, moving from $400.00 to $420.40.

The loan origination fee increase is applicable to all loans with a first disbursement on or after July 1, 2013.  Additionally, COD will not accept loan records until June 28, 2013 for loans with a first disbursement date scheduled for July 1, 2013 or later.  Schools may wish to consider how many students’ loans may be affected by these dates and the implementation of the increased loan origination fee.  If a school were to have a program or term start date near the July 1 timeframe, it may wish to consider utilizing the option of scheduling the disbursement up to 10 days in advance of the first day of class of the payment period [as applicable, see CFR 668.164(f)] if that would be prior to the June 28, 2013 date and allow for the loan to be processed earlier and at the lower origination fee rate.  Separate communications will be forthcoming to FAME clients on how this change will be implemented for those using the FAME products.

ED also provided additional information regarding the final 2013-2014 Campus-Based funds authorizations.  These programs (FWS and FSEOG only) will realize a 5.52% reduction in overall funds available for 2013-2014.  Schools should have received their final funding worksheets and 2013-2014 Campus-Based Statement of Accounts on April 5, 2013.

Schools who have Iraq & Afghanistan Service Grant (IASG) eligible students will note that the sequester requires the maximum award the student would otherwise be eligible for must be reduced by 37.8%.  As an example, a student that is eligible for the maximum $5,550 would be reduced by $2,097.90 [$5,550 x 37.8% = $2.097.90] to $3,452.10.  A like reduction would be applied to a student’s award that may be less due to a less than full-time enrollment status.  The amount the student would have otherwise been eligible for prior to sequestration must be reduced by 37.8%.  The 37.8% reduction is the percentage reduction that must be applied to the applicable award amounts for both 2012-2013 (when the first disbursement is made after March 1, 2013) and 2013-2014.

Similar to the ISAG reductions, TEACH Grants must be reduced by 12.6% for any disbursements made after March 1, 2013.  Adjustments based upon less than full-time enrollment status must also be made utilizing the 12.6% reduction in calculating the award.

ED anticipates more guidance to be put forth related to the impact of sequestration as more information becomes available.

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