In the direction that ED gave on Friday, October 11, 2013, schools are informed that this most recent sequester guidance is based on the changes effective October 1, 2013, which was the beginning of the 2014 Federal fiscal year (FY 2014). The information in this latest update from ED pertains only to FY 2014. It does not replace or supersede the information provided in the three previous communications from ED related to the impact of the sequester on Federal Student Aid programs for FY 2013, which ended September 30, 2013. It is also important to realize that this sequester impact announcement is not related to the Federal government shut-down currently in place. Rather, this sequester announcement is the continuing implementation of the effects of the Budget Control Act (BCA) of 2011 (effective August 2, 2011) that required the across-the-board cuts in programs unless Congress had enacted legislation to reduce the Federal deficit by March 1, 2013.
Schools are reminded that the Federal Pell Grant program is exempt from sequester. Therefore, the 2013-2014 Pell Grant Payment and Disbursement Schedules continue to be in effect. Also, the 2013-2014 Campus-Based aid programs are not impacted as the allocations already made for those programs remain in force. There is no information available at this time as to the potential impact on Campus-Based programs for the 2014-2015 award year.
However, the three other programs— Direct Loans (DL), Iraq and Afghanistan Service Grants (IASG), and TEACH Grants—impacted in 2013-2014 by sequester continue to see effects at the beginning of FY 2014. (See the chart that follows this DYK for a graphical portrayal of the sequester changes.)
The FY 2014 sequester impact that affects the most students is in the Direct Loan (DL) program where the sequester has increased the origination fees charged borrowers once more. The new loan origination fees for Direct Subsidized and Unsubsidized Loans is increased to 1.072%, while the fees for PLUS Loans are increased to 4.288% for parent and graduate/professional student PLUS Loans. Although the FY 2014 sequester changes come into play on October 1, 2013 for the other impacted programs, for DLs, the impact is delayed briefly in light of the operational impacts it causes. Due to the requirements for ED and schools to modify systems and procedures related to the origination fee increases, the effective date of impact is delayed until December 1, 2013. That is, the increase in loan fees will be effective for loans first disbursed on or after December 1, 2013. Schools may begin submitting loans for origination no earlier than October 18, 2013 if the loan’s first disbursement date will be on or after December 1, 2013. If a school has already submitted a loan origination for which the first disbursement of the loan is not scheduled until after December 1, 2013, the school must cancel that loan and then submit a new origination no earlier than October 18, 2013. (NOTE: Schools should be aware that those that use third-party software providers or servicers may find that those providers and servicers have a later specified date as the earliest date on which a new origination may be processed for a loan with a first disbursement on or after December 1, 2013. Schools should monitor further detailed communications from their provider/servicer.)
The DL origination fee increase does not impact those loans that were originated for a first disbursement between March 1, 2013 and November 30, 2013. Loans with first disbursement dates in that period of time will continue to be disbursed as originated with fees of 1.051% for DL Subsidized and Unsubsidized Loans, and 4.204% for PLUS Loans.
Again, schools should plan for an appropriate action plan for canceling any loans already originated that have a first scheduled disbursement date of December 1, 2013 or later. Then, the most effective steps for originating a new loan to replace the ones being cancelled should be taken in a timely manner, if a loan is still needed. FAME clients will be provided more specific details through Customer Service soon.
For the IASG awards where the first disbursement occurs on or after October 1, 2013, the awards must be reduced by 7.2% from the original amounts provided in law. This change does not affect those awards that had a first disbursement between March 1, 2013 and October 1, 2013 as those awards were already modified (reduced by 10.0%) in the effects of the sequester in FY 2013. This is the case even if there is a remaining disbursement to be made for an IASG that was disbursed on or after March 1, 2013.
Likewise, for TEACH Grants, a further reduction in the award amount is instituted. For TEACH Grant awards to be first disbursed on or after October 1, 2013, the award must be reduced by 7.2% from the original statutorily authorized amount. This change does not affect those awards with a disbursement first made on or after March 1, 2013 but before October 1, 2013. (The awards between March 1, 2013 and October 1, 2013 were to be adjusted by the FY 2013 sequester amount of a 6.0% reduction.) Subsequent disbursements on awards with a first disbursement that occurred during the March 1, 2013 through September 30, 2013 period will not be impacted by the new percentage reduction for awards first disbursed in FY 2014, on or after October 1, 2013.
If you have any questions regarding the information contained in this “Did You Know?”, please contact your Customer Service Representative via support.fameinc.com.