Impact of Sequestration on the Title IV Student Aid Programs

admin ., Federal Student Aid Programs

Posted Date: April 5, 2013
Author: Jeff Baker, Director, Policy Liaison and Implementation, Federal Student Aid

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

In two previous Electronic Announcements (March 1, 2013 and March 15, 2013) we provided the financial aid community with information on how the sequester would impact the Title IV student financial aid programs.  In both Electronic Announcements we stated that we would provide updated information as it became available.  This Electronic Announcement provides important information on: (1) the implementation of the sequester required increase in Direct Loan loan fees and (2) the allocation of funds for the 2013-2014 Federal Work-Study (FWS) and Federal Supplemental Educational Opportunity Grant (FSEOG) programs.

Direct Loan Loan Fees –

Previous Guidance – In the earlier Electronic Announcements we advised institutions that under the terms of the sequester, the loan fee for Direct Subsidized Loans and Direct Unsubsidized Loans is increased from 1.0 percent to 1.051 percent and that the loan fee for Direct PLUS Loans is increased from 4.0 percent to 4.204 percent.  Although the sequester provisions were effective March 1, 2013, the March 15, 2013 Electronic Announcement advised institutions to continue to award and disburse Direct Loans, and to submit Direct Loan records to the Common Origination and Disbursement (COD) System using the 1.0 percent and 4.0 percent loan fee amounts until we provided information on when Direct Loan disbursements must be based on the increased loan fee amounts.

As we also noted in the March 15, 2013 Electronic Announcement, institutions will not be responsible or liable for the difference between the higher loan fees and the 1.0 percent and 4.0 loan fees that, consistent with our guidance, they continued to use until we provided additional information.  (See below for that information.)

IMPORTANT:  Institutions that, contrary to the guidance provided in the earlier Electronic Announcements, disbursed Direct Loans using the new loan fee percentages of 1.051 percent and 4.204 percent must adjust those disbursements to use the 1.0 percent and 4.0 percent fees, consistent with the guidance provided in this Electronic Announcement.  Appropriate adjustments to students’ (or parents’) accounts at the institution must also be made.

COD Implementation of Loan Fee Increase – For both Direct Subsidized and Direct Unsubsidized Loans and for Direct PLUS Loans (for both parent and graduate student borrowers) the increased loan fee percentages must be applied to any loan disbursement for a loan where the first disbursement of the loan will be made on or after July 1, 2013.  This includes loans that will be made for the remainder of the 2012-2013 academic year, loans that will be made for summer 2013, and loans that will be made for the 2013-2014 academic year and forward.  If an institution has submitted a Direct Loan record to COD using the lower fees where the first disbursement of the loan will be on or after July 1, 2013, the institution must cancel that submission and resubmit the loan using the higher fee after the COD System reporting date discussed below.

IMPORTANT: Second or other subsequent disbursements of a Direct Loan for which the first disbursement was made before July 1, 2013 must be made and reported to COD using the original 1.0 percent and 4.0 loan fees.

COD System Reporting Date – Just as institutions (and software providers) need time to develop, test, and deploy needed systems modifications to support the loan fee increases, so does the Department for its COD System.  Therefore, institutions may not submit Direct Loan records to COD for loans where the first disbursement will be on or after July 1, 2103, (loans with the higher loan fee amounts) until June 28, 2013, the date that COD Release 12.2 will be implemented.

Of course, loans where the first disbursement is made prior to July 1, 2013 that continue to have the 1.0 percent and 4.0 percent loan fee can be submitted immediately and can continue to be submitted after July 1, 2013.

Allocation of 2013-2014 FWS and FSEOG Funds –

On March, 26, 2013, the Consolidated and Further Continuing Appropriations Act, 2013 (Public Law 113-6) was enacted.  Public Law 113-6 included information that the Department needed to calculate, after accounting for sequestration, the amounts available for 2013-2014 campus-based program allocations.  For comparison purposes, the chart below shows, for each of the campus-based programs, the amounts that were available for the 2012-2013 award year and now for the 2013-2014 award year:

FWS $976,681,576 $925,595,270 $51,086,306 5.52%
FSEOG $734,598,979 $696,175,045 $38,423,934 5.52%

On or about April 8, 2013, we will post to the eCampus-Based (eCB) Web siteinstitutions’ 2013-2014 Statements of Account for each of the Campus-Based programs, along with corresponding final funding worksheets.  Because of certain components of the statutory formulas used to allocate available campus-based funds to institutions (notably the base or conditional guarantee provision), percentage reductions will not be consistent among institutions.

We continue to thank you for your patience and understanding.