The U.S. Department of Education (ED) has provided updated instruction related to the effects of sequestration that first took place effective March 1, 2013. ED gave this most recent guidance in a June 19, 2017, Electronic Announcement, based on the changes effective October 1, 2017, which is the beginning of the 2018 federal fiscal year (FY 2018). This latest update pertains only to FY 2018. This sequester announcement continues the implementation of the Budget Control Act (BCA) of 2011, also known as the sequester law. The law required across-the-board cuts in certain programs. The sequestration effects of the BCA are applicable for 10 years.
Schools are reminded that the Federal Pell Grant program is exempt from sequester. Therefore, the 2017-2018 Pell Grant Payment and Disbursement Schedules continue to be in effect. The changes required by sequestration effective October 1, 2017, are applicable to the Federal Direct Loan fees and the percentage reductions that must be made to awards offered in the Iraq-Afghanistan Service Grant and TEACH Grant Programs where the first disbursement is on or after October 1, 2017.
Federal Direct Loans – Origination Fees
The loan origination fees for Federal Direct Loans where the first disbursement is made on or after October 1, 2017, and before October 1, 2018 are as follows:
- The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is 1.066%. For example, the fee on a $5,500 loan will be $58.63.
- The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is 4.264%. For example, the fee on a $10,000 PLUS Loan will be $426.40.
To aid in understanding the effects of sequestration on loan disbursements made on or after October 1, 2017, and before October 1, 2018, ED provided a chart of examples which is being reproduced here:
A positive observation about the fee changes is that each of the loan origination fee percentages is going down, ever so slightly, by a fraction of a percent.
Iraq-Afghanistan Service Grant and TEACH Grant Awards
Also impacted by sequestration are the award maximums for the Iraq-Afghanistan Service Grants (IASG) and the TEACH Grants. Under sequestration, the IASG or TEACH Grant award maximum for which a student would have otherwise been eligible if sequestration was not in effect must be reduced by 6.60%. The new percentage reductions in award maximums are applicable to any of these grant disbursements made on or after October 1, 2017.
As with the change in Direct Loan origination fees, ED also provided sample illustrations of the impact of the change in the IASG and TEACH Grant awards in chart form. These examples of the result of the change in the required sequestration reduction amounts are shown by the effect applicable to both the 2016-2017 and 2017-2018 award years. The examples ED gave are below:
It is essential to keep in mind that the applicable percentage rate for the loan origination fee is based upon the date of the first disbursement of the loan. Any subsequent disbursements on that loan have the same loan fee percentage rate as was applicable to the first disbursement.
Any loans being submitted now, with a first disbursement to be made on or after October 1, 2017, must use the loan fee percentage applicable based upon the FY 18 sequester. Per ED, loans already submitted prior to ED’s June 19, 2017, Electronic Announcement that had a first disbursement scheduled on or after October 1, 2017, have already been corrected to the new loan origination fee by the COD system.
ED has stated that any COD questions related to implementation of the new required loan origination fees should be addressed to the COD School Relations Center at 800-848-0978 for Direct Loans, or by e-mail to CODSupport@ed.gov.
Should you have any additional questions regarding this topic, please feel free to contact Customer Service through the Client Solution Center. Electronic Announcement, Federal Student Aid, U.S. Department of Education, March 1, 2013.  Electronic Announcement, Federal Student Aid, U.S. Department of Education, June 19, 2017.
This material is presented for informational and educational purposes only and should not be considered to be giving legal advice.