Sequestration Drives Up Fees On Federal Student Loans

Recipients of some federal student loans will have to pay increased fees on the loans because of the automatic budget cuts, known as sequestration, that took effect at the beginning of March. The Department of Education has sent letters to recipients of Direct PLUS loans, which go to graduate students and parents of dependent undergraduates, alerting them to a small increase in the fees associated with the loan.

According to the letter, rates will increase by a little more than 0.2 percentage points, Fox News reports:

“On August 2, 2011, Congress passed the Budget Control Act of 2011, which put into place automatic federal budget cuts, known as the ‘sequester.’ While this law does not otherwise change the amount or terms or conditions of your Direct Loan, it does raise loan fees on Direct PLUS Loans first disbursed after March 1, 2013,” reads a copy of the letter obtained by

“Specifically, the fee on your loan will increase from 4.0 percent of your loan amount 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 letter continues.

The amount of student loan debt held by Americans has skyrocketed in recent decades as the cost of college continues to rise. Americans now hold nearly $1 trillion in debt, according to the Federal Reserve, more than they hold in debt from auto loans or credit cards. Though the increase is small, it will only add costs to those loans, putting students and graduates further into debt and adding to the hindrances such debt has placed on the economy.


Sequestration, meanwhile, has begun hitting education at all different levels. In addition to these increased loan costs, low-income children across the country are being kicked out of preschool programs because of the budget cuts.