Students feel burn of sequester cuts in fee hikes, despite inaction on fraud

The effects of the sequester have spread to the hallowed halls of education.

Both graduate students and the parents of undergrads have been quietly receiving letters from the federal Department of Education. The letters say the fees on their Direct PLUS loans from the government are being raised as a direct result of the automatic budget cuts that kicked in this month because Congress and the White House couldn't come to a fiscal agreement -- despite prior reports on waste and fraud which the department has allegedly been slow to address.

“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 FoxNews.com.

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“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.

While the increase is slight, many families will still have to tighten belts on already strained budgets, and some feel that they are being punished for a stalemate between Democrats and Republicans in Washington.

“The lack of action on both sides is an atrocity,” Kansas resident Russell Schroeder, who currently has two daughters in college and received the letter, told FoxNews.com. “Everyone talks about bipartisanship, but no one gives an inch. ...

“If I managed our budget like Washington did, my family would be out on the street.”

Critics of the recent cutbacks across the country as a result of the sequester say that the cuts could have been avoided by cutting back on wasteful spending.

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A recent congressional report suggests that federal agencies could have saved over $65 billion in 2012 had they listened to the audit recommendations of their respective inspectors general.

In an oversight committee meeting last week, the Department of Education’s inspector general, Kathleen Tighe, testified that there were “longstanding challenges” in the department’s response to audits, which have identified nearly $200 million in federal student aid fraud since 2009.

And the unnecessary spending seems to be across the board. In spring 2012, the Government Accountability Office released a series of reports that pointed out programs with excessive costs that could be cut and, in turn, enhance revenue in the billions.

Schroeder says that even the little increase on an already high loan will make staying within a family budget tough.

“With inflation, this adds up. Five years ago, $25 bought you four bags of groceries," he said. "Now, you’re lucky if it will buy you one bag. ...

“We are getting into a desperate time. Every penny we have to spend on something is precious.”

The sequester-related loan fee hike comes at a time when student loan debt has become a hefty strain on family households. It has surpassed credit card debt in 2010, with Americans owing about $1 trillion and 13 percent of borrowers defaulting on their loans.

And the cuts could affect students even more in the coming academic year, with a 5 percent cut on funding for federal work study and supplemental education programs.

“The cut will come from the overall pool of funding, so many schools will receive less funding and many of them are going to be given a smaller piece of the pot,” Megan McClean, director of policy and federal relations for the National Association of Student Financial Aid Administrators, told FoxNews.com. “Schools are sending out award letters to students saying they have been accepted, but the number will be lower by the time they start. ...

“Students are making decisions now with figures that will be less at the start of the next academic year.”