SEQUESTRATION AND STUDENT LOANS – APRIL 3, 2013
On August 2, 2011, Congress passed the Budget Control Act (BCA) of 2011, which put into place an automatic process of “across-the-board” Federal budget cuts, known as the sequester, to take effect if Congress failed to enact legislation to reduce the Federal deficit by March 1st.
Sequestration did become a reality and will impact student loan programs.
While this law does not otherwise change the amount or terms or conditions of Federal Direct Loans, it does raise the loan origination fee paid by borrowers for Federal Direct Loans disbursed after March 1, 2013.
A loan origination fee is a fee that is deducted from each student loan disbursement. This means the money received will be less than the amount actually borrowed. The fee is a percentage of the total principal borrowed. In simple terms, the origination fee represents a cost to borrow.
• For a Direct Subsidized or Direct Unsubsidized Loan, the loan fee will increase from 1.0 percent of the principal amount of a loan to 1.051 percent. For example, the fee on a loan of $5,500 will be increased by $2.80 from $55.00 to $57.80.
• For Direct PLUS Loans for both parent and graduate student borrowers, the loan fee will increase from 4.0 percent to 4.204 percent. For example, the fee on a $10,000 Direct PLUS Loan will be increased by $20.40 from $400.00 to $420.40.
The Department of Education will be notifying borrowers individually of these fee increases and providing them with additional information. Unfortunately the Department of Education’s systems cannot accommodate the additional fee changes at this time. However, loans awarded, accepted and processed after March 1st will be subject to the higher fees. If you accept a loan for the Summer 2013 semester or for the 2013-14 award year after this date, your disbursements will reflect the new fee change once systems have been updated.
Remember, you do have the opportunity to reduce or decline your loan by contacting your Financial Aid Counselor. Loan proceeds may also be canceled within 14 days of disbursement.
IRS DATA RETRIEVAL PROCESS
Officials in the office of Federal Student Aid and the Internal Revenue Service have worked together to develop a process to simplify the steps that families must complete each year to submit the Free Application for Federal Student Aid – FAFSA. Utilizing the IRS Data Retrieval system will simplify and expedite the submission and verification process. By completing this process, students who are selected for verification will no longer be required to submit signed copies of federal tax returns to our office before we determine your financial aid eligibility.
How Will This Work?
If you complete your FAFSA before you submit your taxes, you are eligible to go back into your FAFSA, make a correction, and select the IRS Data Retrieval option. If you choose not to use the IRS Data Retrieval, and you are selected for verification, you must obtain a tax transcript directly from the IRS. (Download PDF Instructions) To utilize the IRS Data Retrieval tool, you must choose the option within the FAFSA. Once you have selected IRS Data Retrieval tool you will see the screen below:
After selecting OK, you will be redirected to the IRS site:
Completing the information above will provide the authentication necessary to retrieve your information:
Selecting the option above to transfer your information will result in a confirmation message of "Transferred to the IRS"
We realize that many families will not have their federal tax returns completed by the priority application deadline for specific scholarships. If you are in this situation, you can use "estimated income" information on your initial submission of the FAFSA. Once your taxes are completed, the "estimated income" is not an option. Federal Student Aid advises students and parents to go back online and update the FAFSA using the FAFSA-IRS Data Retrieval process. If you completed your taxes after filing your FAFSA, don’t forget to log back into your FAFSA and transfer your tax information using the Data Retrieval Tool. Reminder messages will be sent throughout the processing cycle. Families that will not be eligible to use the FAFSA-IRS Data Retrieval process are:
ATTENTION GRADUATE AND PROFESSIONAL STUDENTS
In general, most graduate students have been eligible for $20,500 in Stafford loans each academic year; $8,500 of which could be subsidized. On a subsidized Stafford loan, the government paid the interest during periods the loan was in deferment, grace or forbearance. One of the provisions arising from the Budget Control Act of 2011 is the elimination of the subsidized Stafford loan for graduate students effective July 1, 2012. Stafford loans will continue to be offered; however, there will be no amount subsidized. We are continuing to research these issues to see how they will affect our financial aid. We will keep you informed as we continue to receive guidance from the U.S. Department of Education