TIPS FOR SEQUESTER RELATED DIRECT LOAN ORIGINATION FEE CHANGE

Last Month the COD system was updated to be able to process loans with the new origination fee scheduled to go into effect on October 1st, 2018 because of the budget control act of 2011, known as the sequester law. This much earlier than in years past and great news for schools who have inevitable been caught flat footed and were plagued with hundreds of rejected loan disbursements come October 1 each year.

If a school submits a Direct Loan record with an incorrect origination fee based on the reported scheduled anticipated disbursement date, it will be rejected with COD Reject Edit 140 (Incorrect Origination Fee Percent and/or Interest Rebate Percent on New Awards).

If a school needs to correct or make changes to a Direct Loan record that has already been accepted by the COD System (such as a case in which the earliest disbursement date has changed and the new earliest disbursement date falls within a different origination fee period), COD recommends that schools run a pending disbursement list either from the school’s financial aid software or from the anticipated disbursement queue on the COD website to identify loans where the first pending disbursement with a date prior to October 1 and with the old origination fee. Once those are identified the school can determine the proper course of action to fix the loan. According to COD:

  • If a disbursement will not be made, then reduce it to zero ($0).
  • If a disbursement was posted to a student’s account prior to October 1, but is not reported to the COD System, then report the disbursement.
  • If a disbursement will post to a student’s account after October 1, and it is not reported to the COD System, then follow the guidance below for changing the origination fee for Direct Loan awards with only anticipated disbursements.
  • If the award was originally rejected by the COD System, then correct the loan fee (and any other rejected data element) and resubmit the award.

For more guidance, check out this electronic announcement from FSA and this helpful attachment too.

SEQUESTER CHANGES TITLE IV STUDENT AID PROGRAMS IN FY 19

Beginning on October 1, 2018 origination fees on Direct Loans including Direct PLUS Loans, are going up. Iraq-Afghanistan Service Grants (IASG) and TEACH Grants are also being reduced. These changes will apply to all loans, IASG and TEACH Grants where a first disbursement is made on or after October 1.

The origination fees have been changing every October 1st because of the Budget Control Act of 2011, known as the sequester law. For Federal Fiscal Year 19 (October 1, 2018 – September 30, 2019):

The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is 1.062%. For example, the fee on a $5,500 loan will be $58.41.

The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is 4.248%. For example, the fee on a $10,000 PLUS Loan will be $424.80.

An Iraq-Afghanistan Service Grant where the first disbursement is on or after October 1, 2018 and before October 1, 2019 requires a reduction of 6.2 percent from the award amount for which the student would otherwise have been eligible.

A TEACH Grant where the first disbursement is on or after October 1, 2018 and before October 1, 2019 requires a reduction of 6.2 percent from the award amount for which the student would otherwise have been eligible.

For more information about the sequester changes see this electronic announcement from FSA.

DIRECT LOAN ORIGINATION FEES EFFECTIVE OCTOBER 1, 2017

It’s October 1st and that means origination fees on direct loans are changing again. Blame it on the Budget Control Act of 2011. Since 2013 the sequester law has been a nuisance for college financial aid administrators working with Federal Direct Student Loans. Unfortunately, the sequestration law isn’t set to expire until 2021.

Beginning on October 1, 2017 the loan origination fees have gone down slightly. For Federal Direct Loans where the first disbursement is made on or after October 1, 2017, and before October 1, 2018 the origination fees 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.

Sequestration doesn’t just impact Federal Direct Loans, it impacts other forms of aid too including the Iraq – Afghanistan Service Grant Program and TEACH Grant Program, both of which require a reduced award amount for any grant that is first disbursed during the time the sequester is in effect. For more information about these programs, check out this electronic announcement from Federal Student Aid.

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.