Effects of Sequestration on Financial Aid & Tuition Assistance

On Friday, March 1, 2013, President Obama signed an order to implement sequestration. While many specific details remain unknown, sequestration will impact federal student aid programs and Department of Defense (DOD) tuition programs.

The Office of Financial Aid will update information related to sequestration as it becomes available.

What Is Sequestration?

Sequestration is an across-the-board cutting mechanism that will impact most federal government programs.  It is designed specifically as a deficit reduction measure and is scheduled to occur over 10 years, in order to achieve roughly $1 trillion in cuts during that time. Sequestration went into effect Friday, March 1, 2013, and is scheduled to impose additional cuts over the next 10 years.  Many higher education programs will be impacted by the reductions in federal spending.

How Will Student Financial Aid Be Affected?

• Federal Pell Grant Program: The Balanced Budget  and Emergency Deficit Control Act of 1985, as amended (BBEDCA), specifically exempts  the Pell Grant Program from the effects of the sequester. Therefore, both the 2012-2013 and 2013-2014 award year payment  schedules will be unchanged under the sequester.
• Direct Loan Program:  The sequester does not change the annual or aggregate loan limits for Direct Loan Program loans, or the rules governing  a student’s (or parent’s) Direct Loan eligibility.  However, it specifies that certain  loan fees paid by borrowers be increased during the time the sequester is in effect (March 1, 2013), as follows:

1. The loan fee for Direct Subsidized and Direct Unsubsidized Loans is increased from 1.0 percent to 1.051 percent.  For example, the fee on a $5,500 loan will increase by $2.80 - from  $55.00 to $57.80.  
2. The loan fee for Direct PLUS Loans for parent borrowers is increased from 4.0 percent to 4.204 percent.  For example, the fee on a $10,000 PLUS Loan will increase by $20.40 - from $400.00 to $420.40.

How will DOD Tuition Assistance Be Affected?

• Tuition Assistance: DOD's Tuition Assistance program that helps active-duty service members pay for higher education expenses have been suspended. This is due to deep cuts in defense spending as a result of sequestration. The Army and Marine Corps, as well as the Air Force and Coast Guard have suspended tuition assistance.  Navy officials have not yet announced whether its program will be suspended.

What About Veterans Benefits?

• Veteran Programs:  All veteran programs, including the Post -9/11 GI Bill, are exempt from sequester cuts in FY13.