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, 2013 deadline has passed and many want to know what will happen next. I would like to shed some light on 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?

Yes, and the best way to examine the potential impact of sequestration is through the lens of time. As a result of sequestration, the U.S. Department of Education has established new origination fees for federal student loans. These new fees are scheduled to increase over time and will 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 and before Dec. 1, 2013 On or after Dec. 1, 2013 and before Oct. 1, 2014 On or after Oct. 1, 2014 and before Oct. 1, 2015
Direct Stafford 1.00% 1.051% 1.072% 1.073%
PLUS 4.00% 4.204% 4.288% 4.292%


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

Loan TypeValueOrigination fees
    On or before March 1, 2013 After March 1, 2013 and before Dec. 1, 2013 On or after Dec. 1, 2013 and before Oct. 1, 2014 On or after Oct. 1, 2014 and before Oct. 1, 2015
Direct Stafford $5,500 $55 $57.80 $58.96 $59.01
Direct Stafford $20,500 $205 $215.45 $219.76 $219.96
Direct Stafford $40,500 $405 $425.65 $434.16 $434.56
PLUS $20,000 $800 $840.80 $857.60 $858.40

 
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.

In addition to increased student loan origination fees, sequestration also could impact UMB students on a number of fronts:

  • 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) also may 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 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, 2013, there has been no indication of an impending furlough.

We will continue to post updates as new information becomes available.

Originally posted March 2013.