Publication Date: May 31, 2016
| DCL ID: | GEN-16-11 |
Subject: FY 2017 Sequester Required Changes to the Title IV Student Aid Programs
Summary: This letter provides information regarding sequester required changes to loan fees in the Direct Loan Program where the first disbursement is on or after October 1, 2016. It also provides information on sequester required reductions to Iraq-Afghanistan Service Grant and TEACH Grants awards where the first disbursement is on or after October 1, 2016.
Dear Colleague:
Because the Budget Control Act of 2011 (the sequester law) remains in effect, sequester-required changes for Federal fiscal year 2017 (FY 2017) will be required effective October 1, 2016. Below we provide information on the sequester-required changes to Direct Loan fees and sequester-required changes in the percentage reduction that institutions must apply to awards in the Iraq Afghanistan Service Grant and TEACH Grant programs. Note that for FY 2017, Direct Loan fees will be increased from the FY 2016 rates by 0.001 percent for Direct Subsidized/Unsubsidized Loans and 0.004 percent for Direct PLUS Loans. The percentage rate reductions to awards in the Iraq Afghanistan Service Grant and TEACH Grant programs will decrease by 0.10% when compared to FY 2016.
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, 2016 and before October 1, 2017 –
The loan fee for Direct Subsidized Loans and for Direct Unsubsidized Loans is 1.069%. For example, the fee on a $5,500 loan will be $58.79.
The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student borrowers) is 4.276%. For example, the fee on a $10,000 PLUS Loan will be $427.60.
The following chart shows the sequester-required loan fees for FY 2016 and FY 2017.
| Direct Loan Fees for FY 2016 and FY 2017 | |||
| Loan Type | First Disbursed | Loan Fee Percent | Fee Example |
| Direct Subsidized Loans and Direct Unsubsidized Loans | First disbursed on or after October 1, 2015 and before October 1, 2016 | 1.068 | $58.74 on a $5,500 loan |
First disbursed on or after October 1, 2016 and before October 1, 2017 | 1.069 | $58.79 on a $5,500 loan | |
| Direct PLUS Loans (Parent and Grad/Prof Student | First disbursed on or after October 1, 2015 and before October 1, 2016 | 4.272 | $427.20 on a $10,000 loan |
| First disbursed on or after October 1, 2016 and before October 1, 2017 | 4.276 | $427.60 on a $10,000 loan | |
| Loan fee calculations that result in more than two decimal places must be truncated (not rounded) to two digits after the decimal point (cents). | |||
As a reminder, the amount of the loan fee for a loan is determined by the date of the first disbursement of the loan. Any subsequent disbursements, even if made on or after the relevant October 1, have the same loan fee percentage that applied to the first disbursement of that loan.
IMPORTANT: Institutions may begin submitting Direct Loan origination records to COD where the first disbursement will be on or after October 1, 2016. Of course, those origination records must have the correct loan fees as provided in this letter.
Iraq-Afghanistan Service Grants
An Iraq-Afghanistan Service Grant where the first disbursement is on or after October 1, 2016 and before October 1, 2017 requires a reduction of 6.9 percent from the award amount for which the student would otherwise have been eligible (i.e., the maximum Federal Pell Grant award amount for the relevant award year).
The following chart shows the FY 2016 and FY 2017 sequester required Iraq-Afghanistan Service Grant Program reductions as they apply to the 2015-2016 and 2016-2017 award years.
| Iraq-Afghanistan Service Grant Awards | |||||
| Award Year | Impacted Awards | Statutory Award Amount | Reduction from Statutory Award Amount | Dollar Reduction Amount | Adjusted Award Amount |
| 2015-2016 | First disbursed prior to October 1, 2015 (FY 2015 Sequester) | $5,775 | 7.30% | $421.57 | $5,353.43 |
| First disbursed on or after October 1, 2015 and before October 1, 2016 (FY 2016 Sequester) | $5,775 | 6.80% | $392.70 | $5,382.30 | |
| 2016-2017 | First disbursed on or after October 1, 2015 and before October 1, 2016 (FY 2016 Sequester) | $5,815 | 6.80% | $395.42 | $5,419.58 |
| First disbursed on or after October 1, 2016 and before October 1, 2017(FY 2017 Sequester) | $5,815 | 6.90% | $401.23 | $5,413.77 | |
| Institutions with systems that require award amounts to be in whole dollars must ensure that a student’s total award amount is rounded down to the next lowest dollar. | |||||
TEACH Grants
A TEACH Grant where the first disbursement is on or after October 1, 2016 and before October 1, 2017 requires a reduction of 6.9 percent from the award amount for which the student would otherwise have been eligible.
The following chart shows the FY 2016 and FY 2017 sequester required TEACH Grant Program reductions as they apply to the 2015-2016 and 2016-2017 award years.
| TEACH Grant Awards | |||||
| Award Year | Impacted Awards | Statutory Maximum Scheduled Award Amount | Percentage Reduction from Statutory Award Amount | Dollar Reduction Amount from Maximum Award Amount | Adjusted Maximum Award Amount |
| 2015-2016 | First disbursed prior to October 1, 2015 (FY 2015 Sequester) | $4,000 | 7.30% | $292.00 | $3,708.00 |
| First disbursed on or after October 1, 2015 and before October 1, 2016 (FY 2016 Sequester) | $4,000 | 6.80% | $272.00 | $3,728.00 | |
| 2016-2017 | First disbursed on or after October 1, 2015 and before October 1, 2016 (FY 2016 Sequester) | $4,000 | 6.80% | $272.00 | $3,728.00 |
| First disbursed on or after October 1, 2016 and before October 1, 2017 (FY 2017 Sequester) | $4,000 | 6.90% | $276.00 | $3,724.00 | |
Questions related to the implementation of the sequester-required Direct Loan fees should be addressed to the COD School Relations Center at 800-848-0978 for Direct Loans. You may also e-mail CODSupport@ed.gov.
General questions about Title IV sequester issues should be addressed to Federal Student Aid’s Research and Customer Care Center (Care Center) staff. Staff is available Monday through Friday between the hours of 9:00 a.m. and 5:00 p.m. (Eastern Time) at 800-433-7327. After hours calls will be accepted by an automated voice response system. Callers leaving their names and phone numbers will receive a return call the next business day. Alternatively, you may e-mail the Care Center at fsa.customer.support@ed.gov.
We thank you for your continued patience and understanding as together we ensure that the terms of the sequester law are enforced.
Sincerely,
Jeff BakerFederal Student AidU.S. Department of Education