The Sequester and Student Loan Cuts: A Scorecard

NEW YORK (MainStreet)—Ask most people what the Budget Control Act of 2011 is, and you will likely get a blank stare. Now ask what the "sequester" is, and you'll probably see a glimmer of recognition -- followed by a blank stare. The Budget Control Act raised the federal debt limit to prevent a default -- with the understanding that there would eventually be a solution to cut the deficit and a crisis would be avoided.

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But like Cinderella's coach turning into a pumpkin at midnight, The Budget Control Act morphed into the sequester at 12 a.m. on March 1, 2013, after Congress failed to produce a deficit reduction bill. At least $1.2 trillion in cuts to the federal budget, split between domestic discretionary spending and defense, are to be made over ten years, with the first $85 billion coming this year.

The term " sequestration" has been used to describe a process where the federal government, in effect, takes back money after Congress approves it. Funds are removed, or sequestered, so federal agencies can't spend them. Budget cuts from the sequester have affected people from all walks of life -- including those with student loans.

What follows is a summary of the impact of those budget cuts on specific federal student aid programs.

The Pell Grant Program

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Federal law specifically exempts the Pell Grant Program from the effects of the sequester. Therefore, the maximum Pell Grant award for the current 2012–13 award year remains at $5,550, and the maximum Pell Grant award for the upcoming 2013–14 award year remains at $5,645.

The Federal Direct Student Loan Program

While the sequester does not change the amount, terms or conditions of Direct Loans, it does raise the loan fee paid by borrowers for Direct Loans disbursed after March 1, 2013.