Compliance Focus: An Update on Sequestration and Title IV Programs

by DLA Piper

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. Congress failed to act by March 1, 2013, and the budget cuts went into effect.

On March 1, 2013, David A. Bergeron, Acting Assistant Secretary published an Electronic Announcement outlining the impact of sequestration on the Title IV Student Financial Assistance Programs. The Electronic Announcement provided the financial aid community with general information on how the sequester will impact Title IV programs.

On March 13, 2013, a second Electronic Announcement provided an update on the impact of sequestration on the Title IV programs.

The Federal Pell Grant Program is exempt from the effects of the sequester. Therefore, there will be no changes for the current Award Year and the 2013-2014 Award Year Pell Grant Payment Schedule that was released on January 30, 2013 in “Dear Colleague Letter” GEN 13-06 will be unchanged under the sequester.

Federal Work Study (“FWS”) and Federal Supplemental Educational Opportunity Grant (“FSEOG”) Programs for the 2012-2013 award year are unaffected by the sequester.

However, under the sequester, Award Year 2013-2014 funding for FWS and FSEOG would be reduced by approximately $86M. Final FWS and FSEOG institutional allocations are expected to be released later this spring. You should not rely on any estimates of allocation amounts until official amounts are released by the Department.

The sequester does not change the annual or aggregate loan limits for Federal Direct Loans, or student’s (or parent’s) eligibility. However, certain loan fees paid by borrowers will be increased during the time the sequester is in effect.

  • The loan fee for Direct Subsidized and 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.
  • The loan fee for Direct PLUS Loans (for both parent borrowers and graduate and professional student 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.

The Department began sending email (and where necessary, paper) notifications on March 9, 2013 to student and parent borrowers who, based on origination records submitted by institutions to the Common Origination and Disbursement (“COD”) System, have a Direct Loan with a first disbursement after March 1, 2013. The text of the notifications for borrowers was provided in attachments to the March 13th Electronic Announcement.

However, on April 5, 2013, the Department published additional updates in an Electronic Announcement that informed the financial aid community that the increased loan fee percentages would be applied Direct loans where the first disbursement will be made on or after July 1, 2013, not March 1, 2013 as originally reported. This includes loans that will be made for the remainder of the 2012-2013 academic year, loans that will be made for summer 2013, and loans that will be made for the 2013-2014 academic year and forward. The Department is still in the process of determining when institutions must begin using the increased loan fee amounts, and has promised to provide us with sufficient lead time to make these changes. You are advised to continue to award and disburse Direct Loans using the pre-sequester loan fee amounts. When the increased fees go into effect on July 1, 2013, we anticipate that students will cover this nominal loss of loan proceeds with other resources. Nevertheless, be sure you comply with the loan cancellation requirements at 34 CFR §668.165 (a)(4) if a student or parent does request that all or a portion of a loan be cancelled.

The Iraq – Afghanistan Service Grant (“IASG”) Program is also subject to the across-the-board budget cuts under the sequester law.  Under sequestration any reduction in the amount of an IASG award would only apply to awards where the first disbursement was made during the time the sequester is in effect. Second or subsequent disbursements of an IASG award for which the first disbursement was made on or before March 1, 2013 are not subject to the sequester required reduction.

However, IASG awards that are subject to the sequester require reductions of 37.8 percent from the award amount for which the student would otherwise have been eligible, not from the Scheduled Award amount of $5,550.

The Teacher Education Assistance for College and Higher Education  (“TEACH”) Grant program is also subject to the across-the-board budget cuts under the sequester law.

The reductions only apply when the first disbursement is made after March 1, 2013. Second or subsequent disbursements where the first disbursement was made on or before March 1, 2013 are not subject to the sequester reduction.

TEACH Grant awards that are subject to the sequester require reductions of 12.6 percent from the award amount for which the student would otherwise have been eligible, not from the Scheduled Award amount of $4,000.

We will provide additional updates as more information becomes available.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.