Sequestration Continues Into Year Four

By NASFAA Policy & Federal Relations Staff 

Fourth year sequester changes for fiscal year (FY) 2016 for the TEACH Grant, Iraq-Afghanistan Service Grant (IASG), and Direct Loan origination fees have been announced by the Department of Education (ED) in Dear Colleague GEN-15-07

Fiscal year 2016 will begin on October 1, 2015 and changes announced in the DCL will take effect on awards for which the first disbursement is made on or after that date. 

A TEACH Grant where the first disbursement is on or after October 1, 2015 and before October 1, 2016 will require a reduction of 6.8 percent from the original amount. The IASG will require a reduction of 6.8 percent from the original amount where the award is first disbursed on or after October 1, 2015 and before October 1, 2016.

Direct loan origination fees will also change as follows: 

  • For Direct Subsidized Loans and Direct Unsubsidized Loans where the first disbursement is made on or after October 1, 2015 and before October 1, 2016, the fee will be 1.068 percent. (e.g. the fee on a $5,500 loan would be $58.74)
  • For Direct PLUS loans where the first disbursement is made on or after October 1, 2015 and before October 1, 2016, the fee will be 4.272 percent. (e.g. the fee on a $10,000 PLUS Loan will be $427.20) 

The DCL includes a helpful chart showing the decreases and effective dates for 2015-16 as compared to 2014-15. The chart also illustrates various loan origination fees.  The loan origination fees are set to decrease slightly compared to last year because the sequestration amount is applied to the loan fee in statute (1.00 percent for Direct Subsidized Loans and 4.00 for PLUS), rather than a cumulative increase. 

 

Publication Date: 4/24/2015


Peter G | 4/24/2015 2:5:43 PM

Joanne- the word from D.C. is that COD will have a mechanism beginning this year that will more easily accommodate amending the fees rather than cancelling the loans and starting from scratch. And even prior you could amend the fees on existing loans, it was just manual and time-intensive so was often impractical.
But again, supposedly they're streamlining that.
For me the bigger issue is the federal insistence on the big fiction of how yield is calculated. A) fees are truncated to the nearest dollar, and b) assessed at the disbursement level, not the aggregate loan. So a $5500 loan disbursed in thirds would have an effective fee of $57, completely unchanged from the net fees in the current fee structure. Even a student getting the loan in one chunk would only pay $58.
I'm not sure who it helps to display a yield that is not in the set of possible outcomes.

Joanne S | 4/24/2015 1:12:54 PM

The origination fee change comes at a challenging time of the year as it's within the first week or two after school starts. Last year we were require to cancel several 1.072% origination fee loans and redo them at the 1.073%. In reality for all loans up to 10,250 the actual whole dollar origination fee did not change. It appears given the small difference in fees on 10/1/15 the same will be true. Rather than canceling these loans if the actual fee deducted doesn't change, couldn't an addendum be sent to the student?

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