Increase in Direct Loan Fees

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, as follows:

For loans disbursed on or after March 1, 2013:

·         For Direct Subsidized and Direct Unsubsidized Loans where the first disbursement of the loan is after the sequester takes effect, the current loan fee of 1 percent of the principal amount of a loan will increase. We presently anticipate that the rate will increase to approximately 1.051 percent. With such an increase, for example, the fee on a loan for $5,500 would increase from $55.00 to $57.80, an increase of $2.80.  We will provide the actual increased percentage when it becomes available.

·         For Direct PLUS Loans for both parent and graduate and professional student borrowers where the first disbursement of the loan is after the sequester takes effect, the current loan fee of 4 percent will increase. We presently anticipate that the rate will increase to approximately 4.204 percent. With such an increase, for example, the fee on a $10,000 Direct PLUS loan would increase from $400.00 to $420.40, an increase of $20.40. We will provide the actual increased percentage when it becomes available.

The Department’s Federal Student Aid (FSA) office has begun developing the processes necessary to implement the higher loan fees mandated by the sequester. One step is informing borrowers of the increased fee percentage so they have the opportunity to cancel or reduce their loan.  FSA plans to send email (and where necessary, paper) notifications to student and parent borrowers who have a Direct Loan where the first disbursement occurs during the period of the sequestration (after March 1, 2013). The notification will advise borrowers of the increased loan fee percentage and advise them that if they wish to cancel or reduce the amount of the loan they should contact the financial aid office at their school.  Sample of the communication for student and parent borrowers.

For Loans Disbursed on or after December 1, 2013:

The new loan fees are 1.072 percent for Direct Subsidized Loans and Direct Unsubsidized Loans and 4.288 percent for Direct PLUS Loans (both parent and graduate student PLUS Loans).