SEQUESTER CHANGES AND OPERATIONAL GUIDANCE FOR DIRECT LOAN FEE CHANGE

The Budget Control Act of 2011 was signed into law by President Barrack Obama to stop the federal government from going into default during the debt-ceiling crisis of 2011. Since then, every October 1st when the federal government begins its fiscal year, automatic spending cuts are imposed on federal appropriations to ensure that spending doesn’t exceed certain thresholds. This is known as “sequestration” or “the sequester” and it’s how the government has been keeping the federal budget in check. In the financial aid office, the sequester requires changes to Direct Loan fees, as well as Iraq-Afghanistan Service Grants and TEACH Grants which I’ve summarized for you below.

Direct Loan Program
The terms of the sequester increase the loan fees charged to Direct Loan borrowers for Direct Subsidized/Direct Unsubsidized and Direct PLUS loans from their statutory rates of 1 percent and 4 percent, respectively.
For loans where the first disbursement is made on or after October 1, 2017 and before October 1, 2018 –
• 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.

Iraq-Afghanistan Service Grants
An Iraq-Afghanistan Service Grant where the first disbursement is on or after October 1, 2017 and before October 1, 2018 requires a reduction of 6.6 percent from the award amount for which the student would otherwise have been eligible.

TEACH Grants
A TEACH Grant where the first disbursement is on or after October 1, 2017 and before October 1, 2018 requires a reduction of 6.6 percent from the award amount for which the student would otherwise have been eligible.

For more information including operational guidance, check out the two relevant Electronic Announcements from ED here and here.

DIRECT LOAN INTEREST RATES EFFECTIVE JULY 1, 2017

Direct Loan interest rates jumped for the first time in several years.

Direct Loan interest rates jumped for the first time in several years. Direct Loan interest rates have been trending downward over the last few years but it was only a few short years ago that Subsidized and Unsubsidized Direct Loans carried a fixed interest rate of more than 4%. All things considered, the new interest rate, although an increase from last year’s rates is still close to historic lows. The Federal Direct Loan Program is still a winner for students with lower interest rates and more favorable repayment terms than loans from private lenders.

Interest rates for Direct Loans are based on a formula whereby the rates are indexed to the 10-Year Treasury Note plus an “add-on” percentage. This year’s auction of the 10-year Treasury note resulted in a “high yield” of 2.400%, thus the reason or the spike. You can read all about it here in a recent Electronic Announcement from Federal Student Aid.

The Interest Rates for loans where the first disbursement is made on or after July 1, 2017, and before June 30, 2018 are:

Undergraduate Students

  • Direct Subsidized loans 4.45%
  • Direct Unsubsidized Loans 4.45%
  • Direct PLUS Loans (All Borrowers) 7.00%

Graduate/Professional Students

  • Direct Unsubsidized Loans 6.00%
  • Direct PLUS Loans (All Borrowers) 7.00%

 


This post first appeared in our July 2017 Newsletter. Click the link below to sign up.

NEW DIRECT LOAN MPN

The Office of Management and Budget (OMB) has approved a revised Direct Subsidized/Unsubsidized Loan MPN and a revised Direct PLUS Loan MPN (for parent borrowers and graduate/professional student borrowers). The new expiration date for both MPNs is 04/30/2019.Paper English versions of the revised MPNs are available for bulk order from the FSAPubs website. Spanish versions of the revised MPNs are only available for borrowers to complete electronically on the StudentLoans.gov website. The Plain Language Disclosures for Direct Subsidized/Unsubsidized and Direct PLUS Loans have also been revised to reflect all changes that are included in the revised MPNs. Schools that provide paper MPNs and PLDs to borrowers must begin using the new versions as soon as practical, but no later than March 24, 2017. After that date previous versions of each MPN will be rejected by the Department. EDExpress print functionality for the MPN, MPN Manifest, and Disclosure Statement is being discontinued. Beginning with this revision to the MPNs, EDExpress will no longer be updated to print the latest revisions to the Direct Subsidized/Unsubsidized Loan MPNs and Direct PLUS Loan MPNs, as well as the disclosure statement documents. http://bit.ly/2hN5iO2

How long is a PLUS Credit check good for?

When a parent or graduate student wishes to take out a PLUS Loan, they must pass a credit check. Schools often ask how early the credit check can be completed. Here’s the answer:

Once a credit check has been completed, a PLUS loan must be originated on the COD system within 180 days; otherwise a new credit check must be done.  

If a borrower wishes to take out another PLUS loan in future academic years, a new credit check will be conducted automatically by the Department if the COD system receives a loan origination record. 

Sequester Changes and Operational Guidance for Direct Loan Fee Change

As has been the case for the last few years, Sequester changes kick in beginning on October 1, 2016; the start of the Federal Government’s Fiscal Year. These changes impact loan origination fees in the Direct loan program and make reductions to the Iraq-Afghanistan Service Grant and Teach Grant programs where the first disbursement is made on or after 10/1/2016. I summarized this below for you Continue reading Sequester Changes and Operational Guidance for Direct Loan Fee Change

2014-2015 Direct Loan Program Year Closeout

The closeout deadline for the 2014-2015 Direct Loan Program Year is Friday, July 29, 2016. This is the last processing day before the end of the program year. All school data must be received and accepted by this date to be included in a school’s final Ending Cash Balance for the year.

All cash management, disbursement reporting, and monthly reconciliation regulatory requirements supersede the closeout deadline. If a school is meeting these regulatory requirements, the final closeout stage should begin no later than the last award end date at the school for a given program and year. A school should be able to reconcile to a zero Ending Cash Balance and close out soon after its final disbursements and should not wait until the closeout deadline.

Prior to program year close out, schools should ensure that fields related to Subsidized Usage Limit Applies (SULA), such as academic year dates, loan period dates, loan and/or disbursement amounts, etc., are updated appropriately.

 

Common 150% SULA Questions and Answers

In March, Federal Student Aid implemented a Direct Loan Subsidized Usage Inquiry Page on the Common Origination and Disbursement (COD) Web site. It gives users the ability to send cases of incorrect Subsidized Usage Period calculations or incorrect applications of loss of subsidy to the Department of Education (the Department) for review and support. Most of the inquiries COD has received, have been the result of school’s simply not understanding the 150% limit or misreported data that schools should be correcting themselves.

http://1.usa.gov/20Qt4r7

DIRECT LOAN QUALITY ASSURANCE PROGRAM

Schools which participate in the Direct Loan program are required by the terms of their Program Participation Agreement (PPA) to implement a quality assurance program within their financial aid office.

A school should have a quality assurance process in place that documents that the school is:

  • Reporting loan records, disbursements, and adjustments to disbursements correctly to the Common Origination and Disbursement (COD) System,
  • Disbursing and returning loan funds in accordance with regulatory requirements,
  • Disbursing the correct loan amount to the correct student,
  • Completing monthly reconciliation and Program Year Closeout.

The Department of Education does not specify the method that schools must follow to meet the quality assurance requirement so each school may develop their own solution.  Schools may have institutional-designed assessments and quality assurance processes in place to ensure that the Direct Loan quality assurance requirement is met.

Regardless of the method or tools a school chooses, it is important for a school to have a clearly documented quality assurance process, to review this process on a regular basis, and document that the process is being used.  The quality assurance documentation should be easily accessible and readily available to Department reviewers in the case of a program review or audit.

For more information click here: http://bit.ly/29Gsey5


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