Sequestration

A Message from Patricia A. Scott, Assistant Vice President of Student Financial Assistance and Education (SFAE)

As you may have heard, the possibility of sequestration has been heavily anticipated in recent weeks. The March 1 deadline has arrived and now, many want to know what will happen next.  Much of what happens next has yet to be determined, however I would like to shed some light on what we do know about the potential impact of sequestration on financial aid here at UMB.

What is sequestration?

Sequestration is a process through which automatic spending cuts will be enacted across multiple areas within the federal budget.

Will sequestration impact UMB students?

It depends. The best way to examine the potential impact of sequestration is through the lens of time.

2012-2013 Sequestration impact on federal student loans

As a result of sequestration, the U.S. Department of Education has established new origination fees for federal student loans. Now that the new rates have been set, SFAE has resumed processing loans. The new fees apply to loans disbursed after March 1, 2013.

The new origination fees can be found below.

Loan Type

Origination Fees (as a percentage of overall loan value)

On or before March 1, 2013

After March 1, 2013

Direct Stafford

1.00%

1.051%

PLUS

4.00%

4.204%

The chart below reflects the change in dollar cost for selected loan values.

Loan Type

Loan Value

Origination fees

On or before March 1, 2013

After March 1, 2013

Direct Stafford

$5,500

$55

$57.81

Direct Stafford

$20,500

$205

$215.46

Direct Stafford

$40,500

$405

$425.66

PLUS$20,000$800$841.00

For loans disbursed after March 1, 2013, the Department of Education will notify borrowers individually of these fee increases and provide them with additional information.

2013-2014 Sequestration impact on federal student loans

Sequestration, if left in force, could impact UMB students on a number of fronts:

  • Increased loan origination fees. The loan origination fee for new Stafford and PLUS Loans will rise. The origination fee for Stafford Loans will increase from 1 percent to 1.051 percent. The origination fee for PLUS loans will increase from 4 percent to 4.204 percent. The new fees will apply to loans disbursed after March 1, 2013.
  • Reduced grant funding. Funds allocated to UMB for the Federal Supplemental Education Opportunity Grant (FSEOG) will be reduced by an estimated 5.1 percent. Grants allocated through the Federal Graduate Assistance in Areas of National Need (GAANN) may also be reduced.
  • Reduced funding for Federal Work-Study (FWS).  Funds allocated to UMB for the Federal Work-Study program will be subject to an estimated 5.1 percent reduction. This is the equivalent of losing seventeen (17) work-study positions.
  • Potential increase in processing time. A furlough of federal workers may result in longer processing times for the Free Application for Federal Student Aid (FAFSA), loans and approvals. These processes are completed by the Department of Education. As of March 1, there has been no indication of an impending furlough.

Please know SFAE will make every effort to keep you informed as more information becomes available.