The End of the Federal Perkins Loan Program?

If Congress does not extend the Perkins Loan program, the authority for colleges to make new Perkins Loans ends on September 30, 2015, with a few exceptions. The authority to make new Perkins Loans actually expired on September 30, 2014, but received an automatic one-year extension under the General Education Provisions Act (GEPA). If Congress does not pass legislation to extend it further, the program will end.

The Perkins Loan is a form of campus-based aid, where loan amounts are subject to the discretion of the college financial aid administrator, with priority given to students with exceptional financial need as defined by the college. Although there is a $5,500 annual loan limit for undergraduate students and an $8,000 annual loan limit for graduate students, most Perkins Loans are much lower. Perkins Loans are made from a revolving loan fund and each college’s allocation from this loan fund is limited. Many colleges choose to spread the funding out among more students, yielding an average Perkins Loan amount of about $2,000. The Perkins Loan, a subsidized loan with a 5% fixed interest rate, is often used to supplement the Direct Subsidized Loan.

The revolving Perkins Loan fund is slowly being depleted as borrowers qualify for forgiveness or default on their Perkins Loans. There have been no new federal capital contributions to replenish the revolving loan fund since Congress ended the federal capital contributions in FY2010.

Colleges will be able to continue making Perkins Loans in certain circumstances.

  • Additional disbursements. If a college first disburses a Perkins Loan for a student for the 2015-2016 academic year prior to October 1, 2015, the college may make additional disbursements for the same loan during the remainder of the 2015-2016 academic year.
  • Grandfathering. If a student received a Perkins Loan in 2014-2015 or a prior academic year, the student may continue to receive Perkins Loans from this college for up to five more years to continue or complete their course of study. Thus, if the college made a Perkins Loan to the student prior to July 1, 2015 and the student is still enrolled in the same academic program at this college, the college may continue making Perkins Loans to the student through September 30, 2020. The student must also have exhausted annual or cumulative eligibility for the Direct Subsidized Loan to receive a Perkins Loans. Students who receive their first Perkins Loan in 2015-2016 are not eligible for grandfathering.

The colleges may not, however, make Perkins Loans to “new borrowers” for whom the first disbursement of a Perkins Loan will occur on or after October 1, 2015.

If Congress does not extend the Perkins Loan program, the revolving loan funds will be returned to the colleges and the federal government as borrowers repay their loans.

President Obama has proposed creating an unsubsidized Perkins Loan program to replace the subsidized Federal Perkins loan. Under the unsubsidized Perkins Loan program, new loans would be made by the Direct Loan program with the same interest rate as Direct Unsubsidized Loans. College financial aid administrators would still be able to select which students receive Perkins Loans.  Annual loan volume would increase from $1 billion to $8.5 billion. The increased revenue from the unsubsidized Perkins Loans would be redirected at expanding other federal student aid programs, such as the Federal Pell Grants. President Obama first introduced a similar proposal in 2010.

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